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Afterpay Ltd – Square Inc to acquire Afterpay and FY21 trading update

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Afterpay Ltd (ASX: APT) is an Australian financial technology company operating in the United States, United Kingdom, New Zealand and Australia. Afterpay has a market capitalisation of around A$37 billion.



What did Afterpay announce to the market yesterday (2 August 2021)?

Afterpay announced that the company has entered a Scheme Implementation Deed where Square Inc (a US-based financial services and digital payments company) has agreed to acquire all the issued shares in Afterpay for around A$39 billion. The consideration for acquiring Afterpay shares is Square Inc shares (that is, there is no cash component). The rationale for the agreement is to better enable the companies to deliver compelling financial products and services that expand access to more consumers, particularly in the US. The completion of the transaction is expected in the first quarter of the calendar year 2022 (subject to regulatory and shareholder approval). This includes approval by the Treasurer under the foreign investment regulatory regime.

Afterpay also announced their FY21 trading update. Afterpay reported underlying sales increased by 102% (Constant Currency (CC)), group revenue increased by 88% (CC) and merchant revenue increased by 102% (CC). On the consumer side, active customers increased by 63%, which brings the total amount of Afterpay customers to 16.2 million. On the merchant side, active merchants increased by 77%, which brings the total merchant network to 98,200.

The key drivers of this result were strong regional performances in North America and the United Kingdom, where underlying sales increased by 177% (CC) and 242% (CC) respectively. Underlying sales growth in Australia and New Zealand increased by 44% (CC).


What is the outlook for APT?

The question now remains if there will be another company willing to pay a higher price to acquire Afterpay than Square is willing to pay. That said, Square is offering to pay a premium of around 31% of Afterpay’s share price immediately after the offer was announced and approximately 10.5% premium over the 30-day volume weight average Afterpay share price. Consequently, this means that any superior bid will need to pay a higher premium to acquire the company.


What is the market reaction?

The market reaction to Afterpay’s FY21 report and squares takeover announcement yesterday resulted in Afterpay’s share price increasing around 20% and is up another 12% today to around A$129. The current price is around equivalent to the value of the implied takeover price offered by Square.



This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

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ASR has no position in any of the stocks mentioned.


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