(Corrects share movement to "up" in 1st paragraph)
SAN FRANCISCO, July 1 (Reuters) - Games publisher Zynga Inc could replace its chief executive Mark Pincus with Microsoft Corp executive Don Mattrick, possibly as early as late Monday, according to a report by AllThingsD that sent Zynga shares up more than 10 percent.
Mattrick, who heads Microsoft's critical Xbox business as the company's president of interactive entertainment, could leave Microsoft to join Zynga, possibly as its CEO and is "working in close partnership with its founder and current CEO Mark Pincus," according to AllThingsD, citing multiple unnamed sources.
Zynga and Microsoft declined to comment on the report.
Pincus, 47, controls a 61 percent voting stake in the gaming company he founded in 2007, according to financial filings from March, and he would have final say over his company's leadership.
Zynga's business model, which relied heavily on selling virtual goods to gamers on Facebook Inc's platform, began to disintegrate a year ago as users tired of Facebook games. Pincus has been unable to turn around the company named after his pet bulldog, Zinga.
The company's shares have hovered at just 25 percent of its $10 price at the company's initial offering price in December 2011.
Mattrick joined Microsoft in 2007 after spending years at Electronic Arts. He helped turn the Xbox business into a profitable venture after years of losses, eventually propelling it into the No.1 selling console in the United States.
Zynga shares were up around 10.5 percent at $3.07 in afternoon trading on the Nasdaq.
Mattrick's departure would come just as Microsoft gears up to launch the third version of its console, called the Xbox One. Unveiled in May and scheduled to hit stores later this year, the machine has already stirred up controversy.
Gamers attacked the high price tag, Microsoft's plan to require an Internet connection at least once a day and moves to limit sharing of used games. Last month, Microsoft reversed its position on the Internet connection and said it would allow game sharing.
If his appointment is confirmed, Mattrick would join a game maker that publishes social media-based titles and low production-value smartphone games - a departure from the world of big-budget, traditional packaged games embodied by the Xbox.
Mattrick has been rumored to depart for months. After EA's CEO stepped down in March, industry sources have speculated that he was in the running to lead the top games publisher, where he previously held numerous leadership roles. (Reporting by Malathi Nayak, Gerry Shih and Alexei Oreskovic in San Francisco and Bill Rigby in Seattle. Editing by Andre Grenon)