Iron Sources The Israeli and the American Unity Software continue their merger process, after the proposal of a third company, AppLovin, to merge with Unity and cancel the Iron Source deal, was rejected about two weeks ago. At the end of the week, Unity submitted a detailed document to the US Securities and Exchange Commission (SEC) in preparation for convening the meetings of the shareholders in the two merging companies, to approve the deal. At this stage, the dates of the meetings have not yet been determined.
Iron Sources Provides a platform for game and application developers, and Unity has developed a 3D software environment for creating computer games. In mid-July, the two announced their merger, in a stock deal that was then valued at $4.4 billion for Iron Source – a 74% premium over Iron Source’s average price in the 30 days prior to the report, but 57% lower than its value when it began trading on the New York Stock Exchange in June 2021. As of today, at Unity’s current share price, the Iron Source share price in the transaction reaches $4.85 and reflects a value for the company approaching $5 billion.
In a report to the SEC, Unity states that it is expected to issue new shares to Iron Source shareholders, so that they will hold approximately 27.3% of the merged company’s shares (26.5% on a fully diluted basis). The balance will be held by Unity’s existing shareholders. In the event that the merger is canceled by one of the companies, it will be forced to pay a fine of 150 million dollars per second. On top of that, if the merger is canceled due to the failure to receive the approvals from the shareholders of one of the companies, it may pay up to 20 million dollars per second in additional compensation for its expenses on the merger.
The companies detail in the report the progress of matters until the announcement of the merger last July. The directors of the companies knew each other before, but the companies point to the beginning of the contacts last March, when Iron Source CEO Tomer Bar-Zev came to a meeting at the Unity headquarters in San Francisco, with Vice President Ingrid Lesteau, to discuss possible collaborations between the companies. Weeks later, when Iron Source management attended a gaming conference in San Francisco, Lestio met Omar Kaplan, Chief Revenue Officer of Iron Source, and they discussed the collaboration.
At the beginning of April, a video call was held in which the CFOs of the two companies also participated, and later more talks were held between officials from the two companies with the aim of getting to know each other better in preparation for a potential business combination, although prices and value have not yet been discussed. Later, at the end of April, the CEOs met Bar-Zev and John Ritchietlo and agreed to continue discussions.
In May, the Iron Sources board convened for a prearranged meeting, in which Bar-Zev informed the directors that in his opinion Iron Sources should examine “strategic opportunities”, as well as regarding the talks that had been going on until then.
In mid-May, an official due diligence process began. Later, senior Unity officials, including CEO Richitello, came to meetings at the Iron Sources headquarters in Tel Aviv, and a few days later, the Iron Sources board of directors discussed the matter with the consultants from Mitar’s attorney’s office and Jefferies Bank.
No new terms have been introduced for the AppLovin deal
During the month of June, the third side of the story “emerged” – the AppLovin company, a competitor of Iron Source which later proposed to merge with Unity. According to the report, that month, the CEO of AppLovin had several conversations with the CEO of Unity and raised the possibility of a deal between them, but no terms of such a deal were presented.
On June 7, as part of the talks between Unity and Iron Source, Unity proposed a cash deal after which Iron Source’s shareholders would hold 22.4% of the merged company. Later, Unity representatives raised the offer to 26% and Iron Source asked for 27%, until the parties agreed on 26.5% and the conversion ratio established in the deal, 0.1089 Unity shares for each Iron Source share.
The deal was signed in mid-July, and in early August there were talks between Unity and AppLovin regarding their business, in which the merger with Iron Source was not mentioned. However, on August 8, in a video call between representatives of Unity and AppLovin (including the CEOs), the CEO of AppLovin said that the company under his management is interested in merging with Unity and that its board of directors will meet with the aim of submitting an offer the same day.
This proposal was indeed submitted and included a merger proposal after which Unity shareholders will own 55% of the merged company. The offer was announced to investors the next day and Iron Source’s stock fell. After several days of discussions at Unity, the company’s board of directors decided that the AppLovin proposal is not considered superior to the Iron Source deal (as defined in the merger agreement) and this on a financial and strategic basis. Therefore the proposal was rejected.
It turns out that last week, the bank advising AppLovin, JP Morgan, contacted the banks advising Unity to examine whether Unity has an “appetite to receive an updated proposal”, but the representatives of the banks (Morgan Stanley and Goldman Sachs) replied that they could not discuss the issue under the terms of the merger , and no new terms were introduced for the AppLovin deal.