Hot on the heels of the announcement of a partnership with payments company Afterpay Ltd (ASX: APT), this afternoon Westpac Banking Corp (ASX: WBC) has revealed plans to sell its entire stake in rival buy now pay later provider Zip Co Ltd (ASX: Z1P).
What did Westpac announce?
Westpac has announced that it has signed an agreement with UBS for an underwritten sale of its 10.7% stake in Zip by way of a fully underwritten book build to institutional investors.
According to the release, the bank has agreed an offer price of $6.65 per share, which equates to a discount of 6.07% to Zip's closing price of $7.08 on Wednesday.
The settlement of the transaction is expected to occur on 26 October 2020.
Why is Westpac selling its stake?
Australia's oldest bank revealed that it is selling its stake as part of its strategy to simplify its business and ensure that it is using its capital efficiently.
The bank notes that the sale will add around 8 basis points to Westpac's common equity tier 1 capital ratio when its settles.
At the last count, Westpac owned 55,460,987 Zip shares. This values its stake at approximately $368.8 million, based on the offer price.
What now for Westpac and Zip?
Despite this news and Westpac's recent partnership with Afterpay, this doesn't mean the end of the two companies working together.
Westpac Chief Information Officer, Gary Thursby, commented: "Larry Diamond, Peter Gray and the management team of Zip have done a tremendous job growing the company, including expanding globally. We look forward to seeing them continue to grow a global customer franchise."
"We are continuing to explore opportunities with Zip, including working to integrate their buy now pay later functionality into our mobile banking apps across Westpac and our Regional bank brands. This would expand our offering to customers and broaden the customers Zip can reach."
"We are also working with Zip on other opportunities for consumer, business, and corporate customers that we believe could be mutually beneficial, while continuing to develop our banking relationship with Zip," Mr Thursby concluded.
