Abu Dhabi money not good for Zynga – *Revisited

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* Correction: Ok so I posted this article below and thanks to Eamonn an tomgara (2 of our readers, I hope they still are!) its not entirely true. Zynga is not actually turning down money, because as he mentions in his comment the shares are being sold by a former exec and not Zynga so technically its not an investment. But apparently Zynga is still getting sued! In conclusion we’d like to thank our readers for their input, and we’ll try our best to avoid such mishaps in the future!

Zynga the world’s leading social game developer is apparently refusing to let Alpha investments an Abu Dhabi firm from purchasing a stake in the company. According to Arabian Business Alpha investments has a contract to purchase one million shares from Andrew Trader, a former executive at the gamemaker. The price tag for the one million shares is $12.87 million, which if true puts Zynga at a value of $6.2 Billion.

Alpha has already filed a complaint stating that Zynga is in the wrong for not letting them purchase the stake in the company, but Zynga replied saying that they are in full compliance with all federal and state securities laws.

And added the following:
“Sometimes would-be buyers do not fully understand or appreciate the need for such compliance,” Jay Monahan, deputy general counsel.

I’m not sure what that exactly means, but I’m pretty sure for a company that was trying to raise more capitol not too long ago, turning money down doesn’t make sense. It’s still early to determine how this will pan out and given that there aren’t a lot of details around the issue it would be premature to pass any judgment but still who turns down $12.87 million there better be a really good reason.

Do you agree with Zynga refusing to accept money from Alpha Investments? Let us know your thoughts below.

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Having worked with top digital agencies in the MENA region for the past several of years I'm now looking now to venture on my own with small side projects in online, social and mobile. Things I like include: gaming, sports, technology, social media, start ups, funny things and reading about new bright ideas.

5 Comments

  1. There would be a specific clause in his contract governing the sale of shares – particularly given that Zynga aren’t a publicly listed company. There are all sorts of SEC investigations going on at the moment – all focused on the so-called ‘secondary market’ – where employees of companies like Facebook, Twitter, Zynga and others are selling shares before the companies go public.

    The biggest issue in this instance is not any sort of anti-trust investigation – as I mentioned, the valuation which these shares are being sold at is much lower than the valuation at which Zynga previously raised money. If this sale went through – the implication is that the shares belonging people who invested in Zynga’s last rounding of funding would be less valuable – and there are pretty strong and unpleasant clauses in investment contracts to protect investors against this happening. Hope that helps.

  2. Thanks Eamonn for the correction (and explanation).. I guess the post will have to be edited, but one question regarding Zynga's role in all of this: if Andrew Trader owns these shares, can't he still sell them to whomever he wants and at any price? Or would their be any specific clause attached with these i.e. Zynga's approval? I'm clearly no expert at this so your input would be greatly appreciated. Thanks…

  3. I’m pretty sure this isn’t a case of Zynga turning down money – the article clearly states that Alpha are trying to buy shares from a former exec at Zynga – which would mean that Andrew Trader is basically trying to cash out these million shares. So the money wouldn’t be an investment in Zynga – it would just be a way of buying into the company without investing. Also – the valuation is lower than the valuation ($9 billion) that Zynga had in their last round of fundraising – which could have serious knock-on effects in terms of anti-dilution clauses etc…

    So the article is kinda wrong – Zynga aren’t turning down money. However, they are being sued. More here: http://blog.games.com/2011/03/02/zynga-lawsuit-ab

  4. Small point but – Zynga would not get any of this money. They are not turning down money. They are not issuing new shares, these are shares already owned by a former employee, being sold to someone else, so there is no money going to Zynga.

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