Terry McCrann: Afterpay’s after-burn shows why cash is king

Afterpay co-founders Anthony Eisen and Nick Molnar.

Maybe cash really is king right now after all, as global markets get all wobbly in the face of rising interest rates.

The former shareholders in former down under market darling Afterpay – including the two co-founders, Nick Molnar and Anthony Eisen – might be rather ruefully thinking so.

Over the weekend the directors of Twitter did the sort of perfect 180 that would make a bogan proud.

After initially, instantly, totally, rejecting the $US43bn ($59bn) takeover offer from the world’s richest and most eccentric billionaire Elon Musk – and putting in place a so-called ‘poison pill’ to make his offer impossible to proceed – the directors suddenly started talking and talking capitulation to Musk.

Musk’s offer is all-cash; he is bidding a non-negotiable – that’s to say, it’s his “best and final” and in Australia he would not be allowed to negotiate a higher price for directorial approval – $US54.20 a Twitter share.

On Friday he announced he had lined up the money.

He’d got $US13bn in loans from a consortium of banks, $US12.5bn in a margin loan against some of his Tesla holding and he committed up to $US21bn of his own money, presumably from being prepared to sell some of his other (un-mortgaged) Tesla holding.

Interestingly Morgan Stanley, which gave him the margin loan, required $US62.5bn worth of his Tesla shares as collateral for the $US12.5bn loan. Hmm; that’s five times the current market value; it sort of suggests what Morgan Stanley thinks about the level of US share prices in general and of Tesla in particular.

I would have thought that surely, say, three times of value would have been enough buffer; especially as the typically climate change-woke Morgan Stanley thinks we are all going to be driving electric cars in a year or so.

But then greed always trumps belief.

Elon Musk says he has the money in place to buy Twitter. Picture: AFP

Anyway, Musk is offering all-cash for those Twitter shares. It doesn’t matter whether he buys them this month or next month, if of course he does buy them; Twitter holders will get $US54.20 a share.

And they’ll still have that $US54.20 in a year’s time, subject to of course what they might do with the money.

It’s a very different story with those former Afterpay holders. Back in August a US company called Square announced a stunning $US29bn offer for Afterpay. It was offering $US93 for each Afterpay share, which translated to $126.21 in down under dollars. Except, you see, it wasn’t actually. It was actually paying 0.375 of a Square share for each Afterpay share. Back then, Square was trading at $US247.26. Now it’s down to $US102.67 despite the overall US market essentially going sideways over that period, even after Friday’s plunge.

Afterpay holders thought they were selling their shares for $126 each and the company for $49bn; they actually sold – as of last Friday, let’s see how much further Square might fall – for $52 and just $16bn.

It’s not that the “dream merger” – of Afterpay’s BNPL platform and Square’s Cash App and Seller operations – has quite turned into a nightmare.

It’s more the case that both have been exposed as not really that 21st century and maybe not even 20th century either.

Yes, they use 21st century tech – around apps – but essentially the Afterpay business is short-term consumer finance like has been around since the 19th century. Oh, did I mention there’s yet another linking reason why the Twitter board might see cash in a favourable light?

The driving force behind Twitter, Jack Dorsey, is also a co-founder and – until Friday – the CEO and chairman of Square, now renamed Block. He’s still really the chairman and CEO except now he calls himself “Block Head and Chairperson”. Maybe he should lose the capital-H and make it one word.