• Square offers 30% bonus in the all-scrip offer for Afterpay
  • Afterpay Board unanimously recommends the offer
  • Afterpay sales in the US will increase in fiscal 2021

SYDNEY, Aug 2 (Reuters) – Square Inc (SQ.N), the payments company owned by Twitter Inc (TWTR.N) co-founder Jack Dorsey, will pioneer Buy Now, Pay Later (BNPL) Afterpay Ltd (APT.AX .) for $ 29 billion, creating a global transaction giant in the largest buyout of an Australian company.

The acquisition underscores the popularity of a business model that has turned consumer credit on its head by charging merchants a fee to offer small point-of-sale loans that repay their buyers in interest-free installments, with no credit checks.

It also includes a notable share price for Afterpay, whose stock traded below A $ 10 in early 2020 and has skyrocketed since then as the COVID-19 pandemic – and stimulus payments to a stuck home workforce – made a quick shift to online Shopping.

The share purchase would value the shares at A $ 126.21 ($ 92.65), the companies said in a joint statement on Monday.

For the founders of Afterpay, Anthony Eisen and Nick Molnar, that means a payday of A $ 2.46 billion each. China's Tencent Holdings Ltd (0700.HK), which paid A $ 300 million for 5% of the afterpay in 2020, would pocket A $ 1.7 billion.

"The acquisition of Afterpay is a 'proof of concept' moment for 'buy now, pay later' to validate the industry instantly and become a formidable new competitor for Affirm Holdings Inc (AFRM.O), PayPal Holdings Inc (PYPL. O) and Klarna Inc., "said analysts at Truist Securities.

"We expect Square will invest heavily to integrate Afterpay and accelerate organic sales growth."

Afterpay shares rose slightly higher than Square's indicative buy price in early trading before settling just below it at A $ 116.51 in the afternoon, up 20.55% and helped push the broader market up 1.4% (.AXJO) to drive.

"We built our business to make the financial system more equitable, accessible and inclusive, and Afterpay has built a trusted brand that is aligned with those principles," Dorsey said in the statement.

"Together we can better network our … ecosystems in order to offer retailers and consumers even more convincing products and services and to put power back into their hands."

Afterpay founders said the deal was "a major recognition of the Australian tech sector as indigenous innovations continue to spread around the world".

INVENTORY

The deal that dwarfs the previous record for a completed Australian buyout – the sale of Westfield's global mall to Unibail-Rodamco in 2018 for 16 billion%.

Afterpay is also competing with the unlisted Swedish Klarna Inc as well as with new offers from the US veteran online payment provider PayPal Holdings Inc (PYPL.O).

"Few other applicants are as good as Square," said analysts at Wilsons Advisory and Stockbroking in a research note.

The Afterpay app can be seen in an image illustration from August 2, 2021 on the screen of a mobile phone. REUTERS / Loren Elliott / Illustration

Continue reading

"Because … PayPal was successful early on in its BNPL home, apart from major US tech titans (Amazon.com Inc (AMZN.O), Apple Inc (AAPL.O)) who were up for an 11-hour period – Use bid, expect a competing proposal from a new party to be low-risk. "

Credit Suisse analysts said the link based on cross-sell payment products appeared "obvious" with "strategic values" and agreed that a competing offer was unlikely.

The Australian Competition and Consumers Commission, which is due to approve the transaction, said it had just been briefed on the plan and would "look into it carefully as soon as we see the details".

POPULARITY

Founded in 2014, Afterpay was the leader in the niche online payments without credit check that entered the mainstream last year as more people, especially teenagers, pay in installments for everyday items during the pandemic.

BNPL firms lend buyers instant money, typically up to a few thousand dollars, which can be paid out without interest.

Since they usually earn money with dealer commissions and late fees – and not with interest payments – they bypass the legal definition of credit and thus the credit laws.

This means that unlike credit card companies, BNPL providers don't have to do background checks on new accounts and usually just ask for an applicant's name, address, and date of birth. Critics say this makes the system an easier target for scams.

The loose regulation, growing popularity, and rapid user adoption have resulted in rapid growth in the industry, and reportedly even led Apple to launch a service. Continue reading

For Afterpay, the deal with Square brings a large customer base in its main target market, the United States, where revenue almost tripled to A $ 11.1 billion in FY 2021 on a currency-neutral basis.

The deal "looks almost like a closed deal in the absence of a superior offer," said Ord Minnett analyst Phillip Chippindale, adding that it "brings significant economies of scale, including Square's seller and cash app products."

Talks between the two companies began more than a year ago and Square was confident there was no competing offer, said a person with direct knowledge of the deal.

Afterpay shareholders will receive 0.375 Class A shares of Square for every Afterpay share they own, which equates to a price of approximately A $ 126.21 per share based on Square's close of trading on Friday, the companies said. The deal includes a break clause worth A $ 385 million that is triggered by certain circumstances, such as when Square investors disagree with the takeover.

Square said it would have a secondary listing on the Australian Stock Exchange to allow Afterpay shareholders to trade shares through CHESS Depositary Interests (CDIs).

Morgan Stanley advised Square on the transaction, while Goldman Sachs and Highbury Partnership advised Afterpay and its board of directors.

($ 1 = 1.3622 Australian dollars)

Reporting by Byron Kaye and Paulina Duran in Sydney, Shashwat Awasthi in Bengaluru and Scott Murdoch in Hong Kong; Editing by Chris Reese and Christopher Cushing

Our Standards: The Thomson Reuters Trust Principles.

source https://seapointrealtors.com/2021/08/02/twitters-dorsey-leads-29-bln-buyout-of-lending-pioneer-afterpay/

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