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Twitter’s Dorsey leads $ 29 billion buyout of loan pioneer Afterpay

By Byron Kaye and Paulina Duran

SYDNEY (Reuters) -Square Inc, the payments company of Twitter Inc co-founder Jack Dorsey, will buy Buy Now, later pay pioneer Afterpay Ltd for $ 29 billion, creating a transactions giant that will take on banks and corporations technology in the fastest growing financial sector.

The takeover, Square’s biggest deal to date and the biggest buyout ever by an Australian company, highlights the popularity of a business model that has shaken consumer credit by charging merchants a fee for offering small point-of-sale loans that buyers repay in interest. free installments, bypassing credit checks.

The buy now, pay later (BNPL) market has exploded over the past year as confined consumers have used it to borrow and spend online during the pandemic, and Apple Inc and Goldman Sachs have been the last heavyweights. reported last month to prepare a version of the service.

The Square buyout could pave the way for further acquisitions, with Mastercard Inc, Visa Inc, PayPal Holdings Inc and others showing interest, said Christopher Brendler, analyst at brokerage group DA Davidson.

“(BNPL) is now more mainstream and (this deal) will attract attention,” he said.

Shares of Square jumped 11%, while those of its counterpart Affirm Holdings Inc rose 17%.

Afterpay shareholders will get 0.375 Class A Square shares for every share they own, implying a price of A $ 126.21 per share based on Square’s close on Friday, the companies said. Afterpay shares closed at AU $ 114.80, up 19%.

The buyout pays founders Anthony Eisen and Nick Molnar a salary of nearly A $ 2.5 billion ($ 1.8 billion) each. Chinese firm Tencent Holdings Ltd, which paid A $ 300 million for 5% of Afterpay in 2020, will pocket A $ 1.7 billion.

AMERICAN USERS

The deal, which eclipses the previous record for a completed Australian buyout, locks in a remarkable run for Afterpay, whose stock was only worth A $ 10 at the start of 2020.

The Melbourne-based company has registered millions of users in the United States over the past year, making it one of the fastest growing markets for BNPL and generating widespread interest in the industry.

“The acquisition of Afterpay is a ‘proof of concept’ moment to buy now, pay later,” analysts at Truist Securities said, adding that Square would now be a “formidable” competitor to Paypal, the Swedish startup no. listed Klarna Inc and others.

Klarna was worth $ 46 billion when it was last raised in June. Shares of Australian peers BNPL Zip Co Ltd and Sezzle Inc also closed higher on Monday.

“Not surprised that these stocks are rising on future consolidation speculation,” DA Davidson’s Brendler said. “The competition is increasing and they also have very attractive platforms.”

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

Credit Suisse analysts said the merger appeared to be an “obvious fit” with “strategic merit” based on cross-selling payment products, and agreed that a competing offer was unlikely.

The Australian Competition and Consumer Commission, which is expected to approve the deal, said it has been made aware of the plan and “will look at it carefully once we see the details.”

“Few other contenders are as well suited as Square,” analysts at Wilsons Advisory and Stockbroking said in a research note.

“With… PayPal already having early success in their original BNPL, with the exception of the big US tech titans (Amazon.com Inc, Apple Inc) pushing for an 11-hour offer, we would expect that a competing proposal from a new party is low risk. “

The deal includes an A $ 385 million break clause triggered by certain circumstances, such as if Square investors do not approve of the takeover.

POPULARITY

BNPL companies lend buyers instant funds, typically up to a few thousand dollars, which can be repaid without interest.

Since they typically make money from merchant commissions and late fees – not interest payments – they bypass the legal definition of credit and therefore credit laws.

This means that BNPL providers are not required to perform background checks on new accounts, unlike credit card companies, and normally only ask for the applicant’s name, address and date of birth. Critics say this makes the system an easier target for fraud.

For Afterpay, the deal with Square provides a large customer base in the United States, where its sales for fiscal 2021 have already nearly tripled to A $ 11.1 billion in constant currency terms.

Square has announced that it will conduct a secondary listing on the Australian Securities Exchange to allow Afterpay shareholders to trade shares through CHESS Custodian Interest (CDI).

Morgan Stanley advised Square on the deal, while Goldman Sachs and Highbury Partnership consulted 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; additional reporting by Niket Nishant and Sohini Podder in Bengaluru and Supantha Mukherjee in Stockholm; Editing by Chris Reese; Christopher Cushing and Saumyadeb Chakrabarty)