Unity Stock Tumbles After Board Rejects AppLovin’s $17.5 Billion Buyout Bid

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Videogaming company

Unity Software

 on Monday rejected

AppLovin’s

 $17.54 billion takeover offer and said it would move ahead with its merger with

ironSource
,
an Israeli software company that helps mobile developers scale their apps.

App marketing services company 

AppLovin

(ticker: APP) had proposed to buy Unity Software earlier this month. According to AppLovin, the combined company could have generated more than $3 billion in run-rate adjusted Ebitda, or earnings before interest, taxes, depreciation, and amortization, by the end of 2024. Comparatively, Unity (U) and

ironSource

(IS) are expected to generate a run rate of $1 billion in adjusted Ebitda, during the same period, Unity’s recent press release states.

But Unity said

AppLovin’s

offer was “not in the best interests of Unity shareholders and wouldn’t reasonably be expected to result in a Superior Proposal.”

At market close, Unity’s stock dropped 7.1% to $54.31, whereas

ironSource

shares jumped 10.7% to $4.40. AppLovin’s stock fell 7.6% to $33.55.

Unity’s bet is on the long-term. It said the

ironSource

transaction “will deliver an opportunity to generate long-term value through the creation of a unique end-to-end platform” that will bring together Unity’s game engine and editor with ironSource’s publishing platforms. Unity’s software has been used to build popular games such as Call of Duty. 

What’s next? That is anyone’s guess. AppLovin could sweeten its offer or Unity could move on and complete its transaction with ironSource in the fourth quarter of this year, as estimated. AppLovin’s offer to Unity was all-stock and its stock declined 10% on the day of the announcement. If the company decides to offer more stock, the price might go down further. 

AppLovin didn’t immediately respond to a request from Barron’s for comment.

As of the end of June, AppLovin had $951.6 million in cash. Unity was assigned a $20 billion enterprise value, which includes debt.

Write to Karishma Vanjani at [email protected]