Game software developer Unity Software Inc. rejected AppLovin Corp’s $17.54 billion takeover bid and said it would move forward with its plan to buy ironSource.
AppLovin, which competes with ironSource to help developers build and monetize their apps, offered to buy Unity in an all-stock deal last week on the condition that it drop the offer of 4 $.4 billion for Tel Aviv-based ironSource.
Unity said AppLovin’s offer was not in the best interests of shareholders and decided it would not be considered a “superior proposal” as defined in Unity’s merger agreement with ironSource .
Shares of Unity, whose platform has been used to create some of the most played games such as “Call of Duty: Mobile” and “Pokemon Go“, were down about 6.8% in morning trading, while ironSource’s jumped about 13.4%.
“I think Unity would at least want a higher bid,” Jonathan Keesanalyst at Daiwa Capital Markets, said. Kees noted last week that AppLovin’s offer was a hasty response to prevent two peers from combining.
After evaluating AppLovin’s proposed offer, which would give Unity 55% of the combined company’s outstanding shares and 49% of the voting rights, Unity and its advisers decided that the economics of such a combination were not not in the best interest of shareholders and believed owning ironSource could help balance its business without investing too much in adtech, people familiar with the matter said.
“The AppLovin offering results in greater synergies and results in a lower pro forma multiple, but we believe the ironSource transaction results in lower dilution in Unity’s game engine,” Jason Bazinetanalyst at Citi, wrote in a note to clients on Sunday.
IronSource said it was committed to entering into the deal with Unity because it would create “superior value for shareholders, customers and employees.”
Unity and ironSource expect the deal to close in the fourth quarter after securing shareholder approval.
AppLovin was not immediately available for comment. Shares of the company fell more than 6% in morning trading.