Square shareholders back Afterpay takeover

The $39 billion takeover of Afterpay has cleared a key hurdle, after shareholders in the acquiring company Square approved its plan to snap up the ASX-listed buy now, pay later giant.

Afterpay told the ASX on Thursday morning that investors in US-listed Square had voted in favour of issuing stock to buy Afterpay, as the Australian company prepares to give its investors more information on the deal ahead of a shareholder vote later this year.

The deal is set to be the largest takeover in Australian history.Credit: Joe Armao.

Under the $39 billion all-scrip deal, set to be the largest takeover in Australian history, Twitter billionaire Jack Dorsey’s US payments platform Square is looking to snap up Afterpay to create a payments “super app” spanning e-commerce and financial services.

Afterpay’s shareholders, who will vote on the transaction next month, will have the option of taking US-listed Square shares or accepting ASX-listed Square shares. The deal will also require the approval of Australian regulatory authorities, including the Foreign Investment Review Board.

Portfolio manager at Tribeca Investment Partners, Jun Bei Liu, said Afterpay’s share price was moving in a way that implied the market was assuming the deal was highly likely to go through.

“Deal risk is pretty much removed, so it [Afterpay’s share price] is going to be influenced by what Square does now,” said Ms Liu, who is invested in Afterpay.

Macquarie analysts said although approval from Squares shareholder was expected, with 99.8 per cent of votes cast supporting the deal, it was a positive step all the same. The analysts said the vote would also put to bed concerns about how Afterpay would be affected by a recent Reserve Bank push to allow merchants to add a surcharge onto the cost of purchases made through buy now, pay later platforms.

“The approval also alleviates any concerns there may have been on RBA’s change in stance on surcharging become a sticking point from the point of view of Square shareholders,” the analysts said.

Afterpay reiterated that it expected the deal to close in the first quarter of 2022. Afterpay shares closed 2.4 per cent higher at $124.38.

Afterpay co-founders Nick Molnar and Anthony Eisen, who have each become billionaires due to the company’s rise, have vowed to continue their involvement at Square, and have been given senior executive positions in the post-merger business.

The record-breaking deal comes as Afterpay - which provides short-term interest-free instalment loans - is facing increasing competition from banking giants including Commonwealth Bank, Citi and payments giant PayPal.

Buy now, pay later (BNPL) providers, including Afterpay and Zip Co, have seen their share prices surge as the pandemic drove rapid growth in online shopping, but the wave of large players entering the sector is expected to put pressure on profit margins, and some analysts expect more corporate deals in the sector.

Afterpay co-founders Nick Molnar and Anthony Eisen, who have each become billionaires due to the company’s rise, have vowed to continue their involvement at Square.Credit: Eamon Gallager

The takeover of Afterpay is a sign of the fierce competition for young financial services customers, who are increasingly turning away from traditional banks in favour of fintechs.

The trend is sparking a major competitive response from the big four banks, with the Commonwealth Bank this week announcing a landmark move into cryptocurrencies, as well as going head-to-head with Afterpay by launching its own BNPL product earlier this year.

CBA’s key rival Westpac, in contrast has formed a partnership with Afterpay allowing the BNPL company to sell deposit accounts to customers, and there are plans to also sell mortgages through the app. Westpac’s financial results presentation this week argued it was making progress in the millennial market, pointing to growth in accounts targeted at adults under 30 and a recent revamp of its banking app.

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