Social network Twitter’s Dorsey to buy Afterpay for US$29bln

Afterpay shares jumped slightly higher than Square’s indicative purchase price in early trading before settling just below it at US$85.60

The payments firm of social network Twitter’s Jack Dorsey, Square Inc, will purchase buy now, pay later (BNPL) leader Afterpay Ltd for US$29 billion, creating a global transactions giant in the biggest buyout of an Australian firm.

The takeover underscores the popularity of a business model that has upended consumer credit by charging merchants a fee to offer small point-of-sale loans which their shoppers repay in interest-free instalments, bypassing credit checks.

It also locks in a remarkable share-price run for Afterpay, whose stock traded below A$10.00 (US$7.35) in early 2020 and has since soared as the pandemic and a rapid shift to shopping online.

The all-stock buyout would value the shares at A$126.21 (US$92.65), the companies said in a joint statement on Monday.

That means a payday of A$2.46 billion (US$1.81 billion) each for Afterpay’s founders, Anthony Eisen and Nick Molnar.

Acquiring Afterpay is a ‘proof of concept’ moment for buy now, pay later, at once validating the industry and creating a formidable new competitor for Affirm Holdings Inc, PayPal Holdings Inc and Klarna Inc, Truist Securities analysts said. We expect Square will invest heavily to integrate Afterpay and accelerate organic revenue growth.

Afterpay shares jumped slightly higher than Square’s indicative purchase price in early trading before settling just below it at A$116.51 (US$85.60) by mid afternoon, up 20.55% and helping push the broader market up 1.4%.

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, said Dorsey in the statement. Together we can better connect our ecosystems to deliver even more compelling products and services for merchants and consumers, putting the power back in their hands.

The Afterpay founders said the deal marked an important recognition of the Australian technology sector as homegrown innovation continues to be shared more broadly throughout the world.

The deal surpassed the previous record for a completed Australian buyout – the US$16 billion sale of Westfield’s global shopping mall empire to Unibail-Rodamco in 2018 – also pushed up shares of rival BNPL player Zip Co Ltd, by 7.53%.

Afterpay also competes with unlisted Sweden-based Klarna Inc as well as new offerings from U.S. veteran online payments provider PayPal Holdings Inc.

Few other suitors are as well-suited as Square, said Wilsons Advisory and Stockbroking analysts in a research note. With PayPal already achieving early success in their native BNPL, other than major U.S. tech-titans (Amazon.com Inc, Apple Inc) lobbying an 11-th hour bid, we expect a competing proposal from a new party to be low-risk.

Credit Suisse analysts said the tie-up seemed to be an “obvious fit” with “strategic merit” based on cross-selling payment products, and agreed a competing bid was unlikely.

The Australian Competition and Consumer Commission, which would need to approve the transaction, said it had just been notified of the plan and will consider it carefully once we see the details.