Gaming software company AppLovin Corp (APP.O) put in a bid on August 9 to buy its peer Unity Software Inc (U.N) in a $17.54 billion all-stock deal, threatening to hinder Unity’s declared plan to take over AppLovin’s smaller rival ironSource.
AppLovin has proposed $58.85 for each Unity share, which amounts to a premium of 18% to Unity’s Monday closing price. Unity will hold 55% of the merged company’s outstanding shares, amounting to about 49% of the voting rights.
AppLoving appointed advisors to draw up an offer after Unity in July said it would buy ironSource in a $4.4 billion all-stock transaction, sources with knowledge of the matter told Reuters. Unity’s board will need to end the ironSource deal if wants to seek a combination with AppLovin, according to the proposal.
Under the proposed deal, Unity’s Chief Executive John Riccitiello will become CEO of the combined business, while AppLovin Chief Executive Adam Foroughi will assume the role of chief operating officer.
Unity said its board would assess the offer. The company posted $297 million in quarterly revenue on Tuesday, climbing 9% year-over-year, while its operating loss broadened. The stock slid 2.68% after the market closed.
Both companies build software used to develop video games. Game-making software has also been growing to new technologies such as the so-called metaverse, or immersive virtual worlds.
Unity’s software has been used to design some of the most-played games such as “Pokemon Go” and “Call of Duty: Mobile”, while AppLovin providers help developers to expand and monetize their apps.
AppLovin’s offer comes as console makers and game developers warn of a downturn in the sector as decades-high inflation and relaxing COVID-19 restrictions caused gamers to opt for outdoor activities. The company reduced its sales guidance on Tuesday.
Michael Pachter, an analyst at Wedbush Securities, wrote:
“The proposed price for Unity appears well below its intrinsic value, and we would expect Unity to reject it for that reason. We think interference with the ironSource acquisition is problematic and will cause Unity’s board to tread very carefully before agreeing to a sale outright.”
Shares of Palo Alto, California-based AppLovin, which went public in 2021, slid 10.29% on Tuesday. ironSource shares dropped 11.21%. ironSource could suffer $150 million in termination fee if Unity decides to bail out, according to the merger agreement.