AppLovin is proposing to buy video game software maker Unity in a $17.5 billion deal

AppLovin is proposing to buy video game software maker Unity in a $17.5 billion deal
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People play “Pokemon GO” on the Pokequan GoBoat Adventure Cruise in the Occoquan River in the small town of Occoquan, Virginia, U.S., August 14, 2016. REUTERS/Sait Serkan Gurbuz

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Aug 9 (Reuters) – Gaming software company AppLovin Corp (APP.O) made an offer on Tuesday to buy its partner Unity Software Inc (UN) in a $17.54 billion all-stock deal, threatening to derail Unity’s announced plan to acquire smaller AppLovin rival ironSource.

AppLovin offered $58.85 for each Unity share, representing an 18% premium to Unity’s closing price on Monday. Unity will own 55% of the outstanding shares of the combined company, representing about 49% of the voting rights.

AppLovin hired advisers to craft a bid after Unity last month said it would buy IronSource in an all-stock transaction valued at $4.4 billion, sources familiar with the matter told Reuters. Unity’s board would have to terminate the deal with IronSource if it wanted to pursue a combination with AppLovin, according to the proposal.

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Under the proposed deal, Unity CEO John Riccitiello will become CEO of the combined business, while AppLovin CEO Adam Forugi will take on the role of COO.

Unity said its board would evaluate the offer. The company is scheduled to report earnings after the bell on Tuesday.

Both companies make software used to design video games. Game creation software is also expanding into new technologies such as the so-called metaverse or immersive virtual worlds.

Unity’s software has been used to build some of the most played games like “Call of Duty: Mobile” and “Pokemon Go,” while AppLovin helps developers develop and monetize their apps.

AppLovin’s proposal comes as game developers and console makers warn of a sector slowdown as decades-high inflation and the easing of COVID-19 restrictions push gamers to opt for outdoor activities. The company lowered its sales guidance on Tuesday.

“The deal comes as a surprise to everyone in the business,” said Serkan Toto, founder of gaming industry consultancy Kantan Games. “This is a $15 billion company chasing a $15 billion company. This is a desperate attempt at consolidation and the chances of this deal happening are very slim.”

Shares of Palo Alto, Calif.-based AppLovin, which went public last year, fell 9.9 percent, while those of Unity rose 1 percent in the morning trading session. IronSource shares fell 9.7%.

Forugi said the combined company would have the potential to generate adjusted operating profit of more than $3 billion by the end of 2024.

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Reporting by Eva Mathews and Nivedita Ballu in Bengaluru, Crystal Hu in New York; Editing by Saumyadeb Chakrabarty and Mike Harrison

Our standards: Thomson Reuters Trust Principles.

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