Afterpay (ASX:APT) to be acquired by Square for $39bn
The Afterpay Ltd (ASX: APT) share price is likely to rocket higher on Monday morning.
This follows news that the buy now pay later (BNPL) provider has received a takeover approach from US payment giant Square Inc.
What was announced?
This morning Afterpay announced that it has entered into a scheme implementation deed under which Square has agreed to acquire the BNPL provider via a recommended court-approved scheme of arrangement.
According to the release, the two parties have agreed an all-scrip deal, which will see Afterpay shareholders receive a fixed exchange ratio of 0.375 shares of Square Class A common stock for each Afterpay share they hold on the record date. Square may also elect to pay 1% of total consideration in cash.
Based on the latest Square share price of US$247.26, this implies a transaction price of approximately $126.21 per Afterpay share and values the deal at approximately US$29 billion or A$39 billion.
While the offer price represents a 30.6% premium to the current Afterpay share price, it is a 21% discount to its 52-week high of $160.05. Nevertheless, the Afterpay Board has unanimously recommended the transaction to Afterpay shareholders. This is subject to no superior proposal and an independent expert concluding that the transaction is in the best interests of shareholders.
The release notes that Square has agreed to establish a secondary listing on the Australian share market to allow Afterpay shareholders to trade Square shares via CHESS Depositary Interests (CDIs). Furthermore, Afterpay shareholders will be able to elect whether to receive the consideration in NYSE listed Square Class A common stock or CDIs. The CDIs are expected to be eligible for S&P index inclusion in Australia.
The closing of the transaction is expected in the first quarter of calendar year 2022, subject to the satisfaction of certain closing conditions.
Transaction rationale
Management notes that the acquisition aims to enable the companies to better deliver compelling financial products and services that expand access to more consumers and drive incremental revenue for merchants of all sizes.
Square Co-Founder and CEO, Jack Dorsey, commented: “Square and Afterpay have a shared purpose. We built our business to make the financial system more fair, accessible, and inclusive, and Afterpay has built a trusted brand aligned with those principles. Together, we can better connect our Cash App and Seller ecosystems to deliver even more compelling products and services for merchants and consumers, putting the power back in their hands.”
Square expects the Afterpay business to accelerate its strategic priorities for its Seller and Cash App ecosystems and plans to integrate the Afterpay service into its existing Seller and Cash App business units. This will enable even the smallest of merchants to offer BNPL at the checkout.
Afterpay’s Co-Founders and Co-CEOs, Anthony Eisen and Nick Molnar, jointly commented: “By combining with Square, we will further accelerate our growth in the U.S. and globally, offer access to a new category of in-person merchants, and provide a broader platform of new and valuable capabilities and services to our merchants and consumers. We are fully aligned with Square’s purpose and, together, we hope to continue redefining financial wellness and responsible spending for our customers.”
“The transaction marks an important recognition of the Australian technology sector as homegrown innovation continues to be shared more broadly throughout the world. It also provides our shareholders with the opportunity to be a part of future growth of an innovative company aligned with our vision,” they concluded.
Both Eisen and Molnar will join Square upon completion of the transaction and help lead Afterpay’s respective merchant and consumer businesses. Square will appoint one Afterpay director as a member of the Square Board following closing.
The Afterpay share price is down 19% in 2021.
Afterpay (ASX:APT) share price goes nuts on Square takeover
The Afterpay Ltd (ASX: APT) share price is going nuts after agreeing to a takeover by Square Inc (NASDAQ: SQ).
Afterpay share price to go nuts on takeover
The Afterpay share price is going crazy after the buy now, pay later business agreed to a takeover by the payments giant Square.
This deal values Afterpay at $39 billion. Square is going to pay for it by issuing new Square shares to Afterpay shareholders.
Based on Square’s closing price of US$247.26, the deal represents an implied price of $126.21. That’s a premium of approximately 30.6% to Afterpay’s last share price of $96.66. However, it only represents a 10.5% premium to the average price over the last 30 days.
Afterpay shareholders will receive a fixed exchange ratio of 0.375 shares of Square shares for each Afterpay shares. The shareholders of Afterpay will own close to a fifth of Square if the deal goes ahead.
But it’s not a done deal. Afterpay will apply for a ruling from the ATO for share-for-share capital gains tax rollover relief. This transaction is intended to be tax-free for Afterpay shareholders in Australia. The receipt of confirmation of this ATO ruling is a condition for the transaction.
The Afterpay board has unanimously recommended the transaction.
Square to list on the ASX
Square has agreed to establish a secondary listing on the ASX to allow Afterpay shareholders to trade Square shares through a CHESS depositary interest (CDI).
Why combine the two businesses?
Aside from the Afterpay share price rising, there could be other benefits for Afterpay shareholders from joining with Square.
Both businesses are expected to be improved by combining the two ecosystems.
Afterpay said it will bring value, differentiation and scale to Afterpay. It will expand Afterpay’s reach with Square’s large and growing customer base of more than 70 million annual transacting active cash app customers and millions of sellers.
Square believes Afterpay will add to gross profit growth with a “modest” decrease of adjusted EBITDA (EBITDA explained) margins in the first year after completion.
However, Square sees an opportunity to invest behind Afterpay’s “strong” unit economics as well as attractive growth synergies.
Summary thoughts on the deal and the Afterpay share price
Considering where the Afterpay share price has been over the last six months, it doesn’t seem like a fantastic price. However, some investors may argue it’s not worth as much as it was priced at, so perhaps most shareholders are getting a good price. But some investors may not be happy.
Afterpay shareholders may get better long-term growth potential under Square though. More competition is entering the BNPL space.
The company also released a trading update.
It’ll be interesting to see if the deal goes ahead.
Australian buy-now-pay-later company Afterpay to be bought by US giant Square for $39bn
Australian Stock Exchange-listed buy-now-pay-later company Afterpay will be bought out by US fintech giant Square for $39bn.
Digital transactions and point of sale business Square said on Monday it had agreed to purchase the company in an all-stock deal worth US$29bn. Afterpay shareholders will get 0.375 shares of Square class A stock for every share they own, or around a price of A$126.21 per share based on Square’s Friday close.
It is around a 30% premium to Afterpay’s last close, and Australian shareholders would own about 18.5% of the combined company. Afterpay’s board unanimously recommended the deal.
Afterpay is the lead company of a burgeoning online payments sector allowing people to pay for their purchases in instalments. The takeover is seen as Square targeting the traditional credit market.
“The addition of Afterpay to Cash App will strengthen our growing networks of consumers around the world, while supporting consumers with flexible, responsible payment options,” said Brian Grassadonia, the lead of Square’s Cash App business.
The two companies said on Monday the deal would create an online payments powerhouse, and help accelerate Afterpay’s growth in the US.
“Square and Afterpay have a shared purpose … Together, we can better connect our Cash App and Seller ecosystems to deliver even more compelling products and services for merchants and consumers,” Square’s chief executive, Jack Dorsey, said.
The transaction is expected to be completed in the first quarter of 2022. The company’s Australian co-founders and co-CEOs, Nick Molnar and Anthony Eisen, will join Square after the transaction is completed and will lead Afterpay’s merchant and consumer businesses as part of Square’s Seller and Cash App systems.
The buy-now-pay-later market has significantly grown in Australia in the past 18 months, leading to calls – resisted by the industry – for it to be more tightly regulated.
It still only accounts for around 1% of payments, however.
Afterpay and rival ZipCo’s share price tumbled in Australia last month when US payments giant PayPal announced plans to launch its Pay in 4 product to allow people to pay in four instalments. Apple is also reportedly looking at launching a similar products, and Commonwealth Bank will launch its product this month.