Sezzle Inc (ASX: SZL) shares have returned from a trading halt and the price has dropped into the red.
In afternoon trade, the buy now, pay later (BNPL) provider's shares are down 3% to $1.70.
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Why was Sezzle in a trading halt?
Sezzle shares were placed in a trading halt yesterday after the BNPL provider received a takeover proposal from rival Zip Co Limited (ASX: Z1P).
As we covered here, Sezzle has agreed to an all-scrip deal that will see shareholders receive 0.98 Zip shares for every Sezzle share owned.
Based on the Zip share price at the time of the offer, this implied a price of $2.1658 per Sezzle share, which represented a premium of almost 22% to Sezzle's last closing price and valued the company at $491 million.
Sezzle's Co-Founder, Executive Chairman and CEO, Charlie Youakim, spoke very positively about the agreement.
He said:
We are extremely excited about the opportunity to create a leader in the financial services industry by combining with Zip and its management team led by Larry [Diamond] and Pete [Gray]. Paul [Paradis] and I believe it will be a great cultural fit for both our organisations and we're excited to be part of Zip's next chapter. I believe the transaction will position us to win in the U.S. and globally.
So why is the share price falling?
When a company receives a takeover proposal, you'll normally see its shares shoot higher. But this hasn't happened with the Sezzle share price today, which may have caught some investors off guard.
As you may recall with the Block Inc (ASX: SQ2) acquisition of Afterpay, when a takeover proposal is an all-scrip affair, the value of the proposal rises and falls with the suitor's share price.
So, with the Zip share price tumbling notably lower today following the completion of an approximately $150 million institutional placement, the deal is already becoming less attractive to shareholders.
At present, the Zip share price is fetching $2. Based on its offer of 0.98 shares per Sezzle share, this now values the transaction at $1.96 per share, instead of approximately $2.17 per share previously.
And while this is still meaningfully higher than the current Sezzle share price of $1.70, it appears that ASX investors don't have a lot of confidence that Zip's shares have found a bottom just yet.
Furthermore, both sets of shareholders have to approve the proposal, so it's not quite a done deal at this stage. As a result, some form of discount has to be applied to reflect this risk.
