Wall Street seems to think the merger is a good deal for IronSource stock, which surged.
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will take over
in an all-stock $4.4 billion merger deal—and investor sentiment on the two companies have diverged in a big way on the news.
The two groups announced that they have reached a definitive agreement under which
(ticker: IS) will become a wholly-owned subsidiary of Unity (U) in a deal that will see each share of IronSource exchanged for 0.1089 shares of its new parent. Unity stockholders will own almost 74% of the combined company following the merger.
Shares in Unity, a software group chiefly focused on video games, slumped 7% in U.S. premarket trading on Wednesday, while IronSource stock soared 52% higher. IronSource is an Israeli software group that primarily allows mobile content creators to scale their apps and businesses.
Valued at $4.4 billion, the deal represents a 74% premium to the 30-day average exchange ratio, the groups said. Unity’s board has also authorized a share buyback program of up to $2.5 billion once the transaction is closed.
The merger is expected to deliver a run rate of $1 billion in adjusted earnings by the end of 2024, and $300 million in annual adjusted earnings synergies by the third year, the groups said.
The announcement of the deal came in tandem with a troubling update from Unity, which has slashed its full-year 2022 revenue guidance to a range of $1.3 billion to $1.35 billion, down from a previous outlook of $1.35 billion to $1.43 billion. IronSource reaffirmed its full-year guidance.
Shares in both companies have suffered severely this year as part of a selloff in tech stocks that has driven the
into a bear market—but Unity and IronSource have both fared worse than most.
While the Nasdaq is down 29% this year, both stocks have lost 71% as of Tuesday’s close. IronSource is set to recoup a chunk of those losses following the deal news while Unity’s share price erodes further. Investors may see the deal as too expensive or have soured on Unity’s updated guidance.
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