RhythmOne, a London-quoted advertising technology company, is close to agreeing a takeover of a US-based rival that could ultimately see its stock market listing shift across the Atlantic.
Sky News understands that RhythmOne is within days of announcing the terms of a $185m cash-and-shares offer for YuMe, which also specialises in video advertising.
Banking sources said on Thursday that the deal was expected to comprise about $125m in paper, with the rest in cash.
The terms of the deal are expected to attribute a price of about 41p-per-share to RhythmOne, a source said.
The London-listed company’s shares were trading at 37p on Thursday morning.
One insider said the merger could yield as much as $20m in annual cost synergies, with internal forecasts projecting that the combined group could boast as much as $70m in annual earnings before interest, tax, depreciation and amortisation over the medium term.
The merger is understood to have the support of key investors in both companies, the insider added, with scope for future returns of capital through share buybacks.
Numis is advising RhythmOne on the talks, with YuMe being advised by Deutsche Bank.
A formal deal is likely to be announced early next week, according to a source, with a commitment to retaining the London listing “in the short term”.
The combined group could switch to a sole New York listing at a later date.
The latest talks about a combination of the two companies come just under two years after they aborted a previous round of negotiations revealed by Sky News.
RhythmOne confirmed the current round of discussions following a report on FT Alphaville last week.
In a separate statement, YuMe said: “As previously announced, YuMe has been engaged in a strategic process in which YuMe continues to consider several value enhancing initiatives, including remaining as a standalone company.
“Given the nature of the discussions with RhythmOne, there can be no certainty that any transaction will proceed.”
Previously known as Blinkx, RhythmOne was spun out of Autonomy, a software business which later went on to be bought by Hewlett-Packard, sparking a huge legal fight over the British company’s accounting practises.
The dispute between H-P and Mike Lynch, Autonomy’s founder, is ongoing.
RhythmOne, which is headquartered in San Francisco, connects digital audiences with brands through premium content.
The prospective merger with YuMe comes just weeks after Ted Hastings succeeded Brian Mukherjee as RhythmOne’s chief executive.
Mr Hastings is expected to run the combined group, while Eric Singer, YuMe’s chairman, will also remain after the deal completes, according to a source.
RhythmOne has seen its shares remain broadly flat during the last 12 months, but has struggled to convince the stock market in recent years that it is able to keep pace with rapid technological change in the digital advertising market.
In 2014, the company became the focus of criticism by an academic affiliated with Harvard Business School who alleged that the way it accounted for revenues masked the fact that much of its growth was predicated upon low-quality digital pop-up advertising.
On Thursday morning, RhythmOne was valued at just over £180m – a far cry from the £900m valuation it reached in 2014.
A RhythmOne spokesman declined to comment.
Source: Sky