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.
