Shares of California-based Unity Software, Inc. (NYSE: U) declined 17.4% on Wednesday to close at $32.82 after the company trimmed its full-year 2022 guidance range to $1.3 billion-$1.35 billion from $1.35 billion-$1.425 billion. The cut takes into account the current macroeconomic environment and the competitive landscape.
The guidance update followed the announcement that Unity and Israel-based software firm Ironsource Ltd. (NYSE: IS) have signed a merger agreement, under which Ironsource will become a wholly-owned subsidiary of Unity through an all-stock deal worth around $4.4 billion.
As per the terms of the agreement, shareholders of Ironsource will get 0.1089 common shares of Unity for each share of Ironsource. Following the completion of the transaction, Unity’s shareholders will hold around 73.5% of the combined company and the shareholders of Ironsource will own the remaining 26.5%.
John Riccitiello, the CEO of Unity, said, “The combination of Unity and Ironsource better supports creators of all sizes by giving them all the tools they need to create and grow successful apps in gaming and other consumer-facing verticals like E-commerce.”
The merged company is expected to generate adjusted EBITDA of $1 billion by the end of 2024. Further, Unity anticipates EBITDA synergies of $300 per year from the third year.
The CEO of ironSource, Tomer Bar-Zeev, and two other directors of the company will join Unity’s board upon the completion of the merger, which is expected in the last quarter of this year.
Additionally, Unity has authorized a $2.5 billion share buyback plan, which will become effective once the merger is concluded. The company expects its second-quarter results to come in above the higher end of its guidance range. It is slated to release its second-quarter results on August 9.
Wall Street’s Take on U Stock
On TipRanks, the stock has a Moderate Buy consensus rating based on 10 Buys, five Holds, and one Sell. Unity’s average price forecast of $54.54 reflects an upside potential of 66.2% from current levels. Over the past year, shares of the company have lost 67.1%.
Hedge Funds Are Confident about Unity
TipRanks’ Hedge Fund Trading Activity tool shows that the confidence in Unity is currently Positive, as the cumulative change in holdings across all 14 hedge funds that were active in the last quarter was an increase of 1.1 million shares.
Unity-Ironsource Merger: A Win-Win for All
The merged company will boast of improved data scale and user reach, as it will utilize the ad networks of both companies. The combination will also prove beneficial for telecommunication companies, as they will be able to leverage RT3D and interactive gaming experiences of both Unity and Ironsource.
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