Square to buy Afterpay for $29 bln as buy now, pay later booms

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

August 2 (Reuters) – Square Inc (QN) said Monday that it agreed to buy now, pay later (BNPL), pioneer Afterpay Ltd (APT.AX) create a global online payments giant offering a 30% premium in a stock swap deal that will be Australia’s largest buyout of all time.

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.

Burgeoning popularity, rapid user adoption, and loose regulation have fueled rapid growth in the industry, and reportedly even prompted Apple Inc. to plan for such a service. Continue reading

“Square and Afterpay share a common goal … Together we can better connect our cash app and seller ecosystem to deliver even more compelling products and services to merchants and consumers,” said Jack Dorsey, co-founder of Square and Twitter Inc.

For Afterpay, the transaction has a large customer base in its main target market, the United States, where revenue almost tripled to A $ 11.10 billion ($ 8.15 billion) in constant exchange rates in fiscal 2021.

The deal “looks almost like a closed deal in the absence of a superior offer,” said Ord Minnett analyst Phillip Chippindale. “The strategic rationale for the business combination is solid in our view (brings significant economies of scale, including Square’s seller and cash app products).”

Afterpay shareholders will receive 0.375 Class A shares of Square for every share they own, which equates to a price of about A $ 126.21 per share based on Square’s close of trading on Friday, the companies said.

Afterpay shares were up 26% on Monday at A $ 121.55, but below the offer’s implied value.

BNPL firms lend buyers instant loans, typically up to a few thousand dollars, which can be paid out in interest-free installments.

Since they generally make money from merchant commissions and late fees, not interest payments, they circumvent the legal definition of credit and 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 offer, which comes at a time of hectic deal-making activity, is more than a 30% premium over Afterpay’s last deal and the Australian company’s shareholders are expected to own approximately 18.5% of the combined company. Continue reading

Afterpay’s board of directors has unanimously recommended the transaction to shareholders, the company said in the joint statement.

Afterpay co-founders Anthony Eisen and Nick Molnar become Square, which will appoint an Afterpay director to its board of directors following the deal.

The US company announced a secondary listing on the Australian Stock Exchange to enable Afterpay shareholders to trade shares through CHESS Depositary Interests (CDIs).

($ 1 = 1.3620 Australian dollars)

Reporting by Shashwat Awasthi and Paulina Duran; Editing by Chris Reese and Christopher Cushing

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