AppLovin is offering to buy software maker Unity for $17.5 billion

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

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

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

AppLovin hired advisers to prepare an offer after Unity said last month it would buy ironSource in a $4.4 billion stock transaction, sources familiar with the matter told Reuters. Unity’s board would have to terminate the ironSource deal if it wants to pursue a combination with AppLovin, according to the proposal.

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

Unity said the board will review the offer. The company is scheduled to report its earnings after midnight on Tuesday.

Both companies make software used to design video games. Software for game production has also expanded to 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 grow and monetize their apps.

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

“The deal comes as a surprise to everyone in the industry,” said Serkan Toto, founder of gaming industry consultancy Kantan Games. “It’s a $15 billion company going after a $15 billion company. It’s a desperate attempt to consolidate 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% while Unity rose 1% in the morning trading session. Shares in ironSource fell 9.7%.

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

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

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