Square makes $39 billion Afterpay takeover bid

Square makes $39 billion Afterpay takeover bid

Afterpay co-founders and co-CEOs Anthony Eisen and Nick Molnar.

Digital payments company Square (NYSE: SQ) has today announced plans to acquire Australian buy-now pay-later giant Afterpay (ASX: APT) for $39 billion, with the merger to create a global fintech giant.

The proposed acquisition by Twitter founder Jack Dorsey's Square, which values Afterpay by $12 billion more than its market capitalisation as at 30 July 2021, is expected to be paid in Square stock.

"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," Square co-founder and CEO Jack Dorsey said.

"Together, we can better connect our Cash App and Seller ecosystems to deliver even more compelling products and services from merchants and consumers, putting the power back in their hands."

Square plans to integrate Afterpay into its existing business units, enabling even the smallest of merchants to offer BNPL at checkout.

"Buy now, pay later has been a powerful growth tool for sellers globally," Square lead of seller business Alyssa Henry said.

"We are thrilled to not only add this product to our Seller ecosystem, but to do it with a trusted and innovative team."

Afterpay co-founders and co-CEOs Anthony Eisen and Nick Molnar, who will join Square upon completion of the transaction, have both backed the proposed acquisition of the BNPL company.

"By combining with Square, we will further accelerate our growth in the US 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," Eisen and Molnar said.

"The transaction marks and 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."

Under the Scheme Implementation Deed, which has been approved by the members of the board of directors of both companies, Afterpay shareholders will receive a fixed exchange ratio of 0.375 shares of Square stock for each APT share they hold on the record date.

Square has agreed to establish a secondary listing on the ASX to allow Afterpay shareholders to trade share via CHESS Depositary Interests (CDIs), after which they will be able to elect whether to receive the consideration in NYSE stock or CDIs.

Shareholders of both companies still need to approve the deal in addition to US and AUS regulatory approvals. It is anticipated the transaction will close in the first quarter of calendar year 2022.

APT shares surged by 28.3 per cent to $124.22 at the opening of trade, only to drop off somewhat to $117.23 each in the afternoon, still representing close to a 12 per cent lift on Friday's closing price. 

As the saying goes, a rising tide lifts all boats. Afterpay's largest Australian competitor Zip Co (ASX: Z1P) has also seen its shares rise today, up by more than 8.5 per cent to $7.20 each. Humm Group (ASX: HUM) shares are up by 3.7 per cent.

Afterpay US sales more than double in FY21

In conjunction with the announcement from Square, Afterpay has released a FY21 trading update today detailing 148 per cent growth in US sales during the financial year.

Overall, sales hit $12.1 billion in FY21, up 90 per cent on the prior corresponding period, with $9.8 billion contributed by its North American business compared to $4 billion a year ago.

Revenue saw growth too, up 78 per cent to $925 million, and gross profit rose by 75 per cent to $675 million.

The company now has 16.2 million customers globally, with the majority in the US, and nearly 100,000 merchants - up 77 per cent on FY20.

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