Ironsource stock jumps after Unity announces merger

Yahoo Finance Live anchors discuss Unity’s $4.4 billion acquisition of ironSource.

Video transcript

- Let's get to some individual stocks that we're watching here this morning. First up, Unity Software announcing a $4.4 billion deal to buy ironSource, a stock for stock, all stock deal here. Unity gets a bigger edge in mobile content, like apps, as part of this. Unity shareholders Silver Lake and Sequoia are going to invest a billion dollars in Unity. Following the transaction, ironSource getting a big lift here.

Unity came public, I was just looking at this, going back to September of 2021 I think at $52 a share, if I'm not mistaken. You can see the shares are $34.50 right now. They reached as high as $200, just over $200.

- Right, this was one of the pandemic darlings. I mean, the connectivity that Unity Software provides for gaming environments broadly and the customers that I think they can fuse together here with this. But at the end of the day, you just wonder what type of cost efficiencies and synergies are really going to come forward that are going to prop up this now consolidated business that you imagine is also going to be going through its own kind of restructuring as it merges the two businesses together, too.

- Yeah, if you're the folks at ironSource, pop the Champagne. Your stocks are almost $3. And you're getting a 74% premium completely out of the blue to merge with another company that has largely unproven itself since that September 20 IPO, the stock price at $52. It's now at $37.

So you're wondering, why is this ticker so hot on our platform? Why is Unity getting smashed? One, because they're paying a 74% premium for a company that I would say is still unproven. Number two, all-stock transaction, market doesn't like to see all-stock transactions historically.

And it's unclear if they can meet some of these aggressive targets. They're putting out a $1 billion operating profit margin, operating profit target by 2024. Good luck with that. And last but not least, Silver Lake and Sequoia are getting convertible notes after this deal. Which will probably put more pressure on the bottom line. Wish them well, though.

- Look, I mean, they had already said that their business was slowing down in the most recent quarter, the operate business specifically. That challenge they said caused by internal factors in Unity monetization in an otherwise healthy market. I mean, that sounds like a red flag to me.