Why Getty Images and Shutterstock Stocks Exploded Today

Image library companies Getty Images (NYSE: GETY) and Shutterstock (NYSE: SSTK) are merging, sending shares of both companies soaring in morning trading Tuesday.

As of 10:15 a.m. ET, Getty stock is up a solid 24.5%, with Shutterstock gaining a nearly as impressive 22.5%.

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Getty-Shutterstock merger details

The companies announced their plans to merge to create "a premier visual content company" early this morning, saying they expect a merger to cut out between $150 million and $200 million in unnecessary costs within three years, and to begin boosting combined earnings and cash flow in Year 2.

Although termed a "merger of equals transaction," the combined company will end up keeping the Getty Images name, will continue to go by the ticker "GETY" on the NYSE, and Getty shareholders will end up owning 54.7% of the combined company. Moreover, Getty CEO Craig Peters will lead the new company, and Mark Getty will chair the board.

All of which makes this look a bit more like an acquisition than a merger.

The companies did not say when they expect this deal to close, noting that this will depend in part on "customary closing conditions, including receipt of required regulatory approvals, the approval of Getty Images and Shutterstock stockholders and the extension or refinancing of Getty Images' existing debt obligations."

Combined, the companies will generate about $2 billion in 2024 revenue, and produce between $569 million and $574 million in earnings before interest, taxes, depreciation, and amortization (EBITDA).

What happens next?

According to the companies, the merger will be effected by Shutterstock shareholders handing in their shares to be replaced with either $28.85 in cash per Shutterstock share, or 13.67 shares of Getty stock per Shutterstock share, or a combination of $9.50 cash and 9.17 Getty shares per Shutterstock share.

In total, Getty expects to pay $331 million plus 319.4 million shares of its stock to acquire Shutterstock. At today's share price, that works out to a valuation of about $1.35 billion on Shutterstock, or about 7% more than what Shutterstock costs after today's price spike.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Shutterstock. The Motley Fool has a disclosure policy.