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Square to acquire Afterpay for $29bn as ‘buy now, pay later’ booms

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Square Inc updates

Payments company Square has reached a deal to acquire Australian “buy now, pay later” provider Afterpay in a $29bn all-stock transaction that would be the largest takeover in Australian history.

Square, whose chief executive Jack Dorsey is also Twitter’s CEO, is offering Afterpay shareholders 0.375 shares of Square stock for every share they own — a 30 per cent premium based on the most recent closing prices for both companies.

Melbourne-based Afterpay allows retailers to offer customers the option of paying for products in four instalments without interest if the payments are made on time.

The deal’s size would exceed the record set by Unibail-Rodamco’s takeover of shopping centre group Westfield at an enterprise value of $24.7bn in 2017.

The transaction, which was announced in a joint statement from the companies on Monday, is expected to be completed in the first quarter of 2022.

Afterpay said its 16m users regard the service as a more responsible way to borrow than using a credit card. Merchants pay Afterpay a fixed fee, plus a percentage of each order.

The deal underscored the huge appetite for buy now, pay later providers, which have boomed during the coronavirus pandemic.

“Square and Afterpay have a shared purpose,” said Dorsey. “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.”

Adoption of buy now, pay later services had tripled by early this year compared with pre-pandemic volumes, according to data from Adobe Analytics, and were particularly popular with younger consumers.

Rivalling Afterpay is Sweden’s Klarna, which doubled its valuation in three months to $45.6bn, after receiving investment from SoftBank’s Vision Fund 2 in June. PayPal offers its own service, Pay in 4, while it was reported last month that Apple was looking to partner with Goldman Sachs to offer buy now, pay later facilities to Apple Pay users.

Steven Ng, a portfolio manager at Afterpay investor Ophir Asset Management, said the deal validated the buy, now pay later business model and could be the catalyst for mergers activity in the sector. “Given the tie-up with Square, it could kick off a round of consolidation with other payment providers where buy now, pay later becomes another payment method offered to their customers,” he said.

Over the past two years Afterpay has expanded rapidly in the US and Europe, which now account for more than three-quarters of its 16.3m active customers and a third of merchants on its platform. Afterpay said its services are used by more than 100,000 merchants across the US, Australia, Canada and New Zealand as well as in the UK, France, Italy and Spain, where it is known as Clearpay.

Square intends to offer the facility to its merchants and users of its Cash App, a fast money transfer service popular with small businesses and a competitor to PayPal’s Venmo.

“It’s an expensive purchase, but the buy now, pay later market is growing very rapidly and it makes a lot of sense for Square to have a solid stake in it,” said retail analyst Neil Saunders.

“For some, especially younger generations, buy now, pay later is a favoured form of credit. Afterpay has already had some success with its US expansion, but Square will be able to accelerate that by integrating it into its platforms and payment infrastructure — that’s probably one of the justifications for the relatively toppy price tag of the deal.”

Square handled $42.8bn in payments in the second quarter, with Cash App transactions making up about 10 per cent, according to figures released on Sunday. The company posted a $204m profit on revenues of $4.7bn.

Once the acquisition is completed, Afterpay shareholders will own about 18.5 per cent of Square, the companies said. The deal has been approved by both companies’ boards of directors but will also need to be backed by Afterpay shareholders.

As part of the deal, Square will establish a secondary listing on the Australian Securities Exchange to provide Afterpay shareholders with an option to receive Square shares listed on the New York Stock Exchange or the ASX. Square may elect to pay 1 per cent of the purchase price in cash.

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PayPal to acquire ‘buy now, pay later’ provider Paidy for $2.7bn

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Mergers & Acquisitions updates

PayPal, the US online payments company, has agreed to acquire Paidy, a Tokyo-based “buy now, pay later” group, for ¥300bn ($2.7bn) in the latest shake-up in the industry.

The deal announced late on Tuesday, which will be paid for principally in cash, deepens PayPal’s push into the crowded BNPL sector, in which consumers spread the cost of goods over a small number of payments, typically without interest and often without requiring a credit check.

Last month, Square, the payments company led by Twitter chief executive Jack Dorsey, acquired BNPL group Afterpay for $29bn, in the largest takeover in Australian history.

Shares in San Francisco-based Affirm, another BNPL company, soared last month after it announced a partnership with Amazon allowing shoppers who spend more than $50 to make payments in monthly instalments.

Paidy, founded in 2008, is one of Japan’s few “unicorns”, or start-ups worth more than $1bn. The company launched the country’s first zero-interest post-payment service last year.

While the global BNPL market has exploded in popularity owing to the pandemic-driven boom in online shopping, the trend is only starting to catch on in Japan, where consumers still depend heavily on cash payments.

Paidy allows its 6m registered users to split the cost of goods into three equal instalments with no interest. Users can pay off their balance using cash at convenience stores or bank transfers.

According to Yano Research Institute, the volume of transactions made through post-payment services in Japan is expected to more than double from an estimated ¥882bn in fiscal 2020 to ¥1.88tn by fiscal 2024.

Paidy was valued at $1.3bn when it raised $120m in March, and was expected to list its shares in Tokyo later this year. It has been backed by trading house Itochu, Goldman Sachs and Soros Capital Management along with PayPal.

Russell Cummer, the Japanese fintech’s founder, recently told the Financial Times that a public listing “made sense” — though no firm timetable had been established. Instead, the company is now expected to become part of PayPal by the fourth quarter of this year.

“Paidy pioneered ‘buy now, pay later’ solutions tailored to the Japanese market and quickly grew to become the leading service, developing a sizeable two-sided platform of consumers and merchants,” said Peter Kenevan, PayPal’s vice-president and head of business in Japan.

“Combining Paidy’s brand, capabilities and talented team with PayPal’s expertise, resources and global scale will create a strong foundation to accelerate our momentum in this strategically important market.”

PayPal said Paidy would “continue to operating its existing business, maintain its brand and support a wide variety of consumer wallets and marketplaces”. Cummer and Riku Sugie, Paidy’s president and chief executive, will continue to lead the company, according to a statement.

“Paidy is just at the beginning of our journey and joining PayPal will accelerate our plans to expand beyond ecommerce and build unique services as the new shopping standard,” said Sugie. “PayPal was a founding partner for Paidy Link and we look forward to working together to create even more value.”

The acquisition comes as PayPal rolls out its broader strategy to become a “super app” — incorporating payments, cryptocurrency investments and savings — drawing inspiration from under-one-roof Chinese apps such as WeChat.

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Bitcoin: El Salvador’s experiment does not warrant cross-cryptocurrency price rise

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Bitcoin updates

Early adopters of virtual currencies have a clear incentive to promote mainstream acceptance. The more buyers, the higher the price. Crypto fans, therefore, hatched an online plan to bolster bitcoin as El Salvador legalised the tokens for payments. That was logical. The knock-on rise in other cryptocurrency prices was not.

Bitcoin’s 8 per cent rise over the past seven days means that it is now worth about $51,000. But according to data from CoinGecko, which tracks more than 9,000 coins, it is not the largest mover. Ethereum, the world’s second-largest cryptocurrency, has leapt 16 per cent over the past week. Solana’s SOL tokens have risen 69 per cent.

There is no sensible reason for these rallies. El Salvador is not expected to make other virtual currencies legal tender. Instead, the jumps reflect a soupy mixture of low rates, blind faith and better investor access.

Trading apps make it easier for retail investors to buy cryptos. The initial public offering of Coinbase in April raised its profile, leading to a jump in downloads.

The make-believe world of nonfungible tokens, or NFTs, has also given cryptos a boost. These prove ownership of digital assets such as art, music or even virtual pet rocks. Many use the ethereum network. Solana, which is backed by Andreessen Horowitz, has its own NFT marketplace, Solanart.

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None of this, however, has anything to do with El Salvador’s attention-seeking adoption of bitcoin. This diverts domestic attention from the failing economy of this impoverished Central American nation, the first country to embrace bitcoin as legal tender. It also supplies cheerier news flow to bitcoin fans than did the cryptocurrency’s collapse in value this spring.

Rising prices mean the total market value of cryptocurrencies has reached nearly $2.4tn. It is rapidly closing in on the previous record of $2.57tn set in May. Bitcoin’s share of the market has fallen. It is now about 40 per cent, down from 57 per cent a year ago. Yet bitcoin remains a powerful bellwether.

This could be a problem if bitcoin’s latest rally depends on success in El Salvador. President Nayib Bukele says the country has purchased 400 bitcoins — equal to just 0.002 per cent of the outstanding value. Local opposition is widespread, suggesting take-up will be low. A damp squib is more likely than the financial dislocation some critics are prophesying.

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Europe stocks notch best day in 6 weeks on sustained stimulus hopes

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Equities updates

European equities had their biggest rise since late July on Monday as weaker-than-expected US jobs data suggested pandemic-era stimulus, which has helped prop up markets, may continue for longer than anticipated.

The Stoxx Europe 600 index gained 0.7 per cent, the region-wide benchmark’s best day in six weeks, as traders analysed the implications of a large miss in US job creation. Employers in the US added 235,000 jobs in August, which fell wide of economists’ projections of more than 728,000 new hires.

“The weak jobs number gave the Federal Reserve ample room to take it easy in terms of how and when it will taper” its $120bn of monthly bond purchases that begun in March 2020, said Maarten Geerdink, head of European equities at NN Investment Partners.

Before Friday’s non-farm payrolls report, some analysts had expected the Fed to announce a reduction of its asset purchases as early as this month.

European stocks, Geerdink added, were “in a sweet spot with the eurozone economy doing well while financial conditions remain extremely loose”.

London’s FTSE 100 index also ended the session 0.7 per cent higher while US markets were closed for Labor Day.

Column chart of Stoxx Europe 600 index, daily % change  showing European stocks notch best day in six weeks

Economists expect the European Central Bank to provide an update about its own debt purchases at its meeting on Thursday, with government bond prices signalling some expectations of a pullback. The yield on the benchmark German 10-year Bund, which moves inversely to its price, was steady on Monday at minus 0.37 per cent, around its highest point since mid-July.

Technology shares, which tend to perform well when expectations of low-for-longer bond yields flatter valuations of growth companies, were the best performers in Europe with the sector rising 1.7 per cent on Monday.

In Asian equity markets on Monday, Chinese shares rallied after vice-premier Liu He said the government would continue to support private businesses despite a regulatory crackdown across the technology and education sectors. 

“Policies for supporting the private economy have not changed . . . and will not change in the future,” Liu said in comments reported by state news agency Xinhua. The CSI 300 index of mainland Chinese stocks climbed 1.9 per cent. 

Japan’s Nikkei 225 gained 1.8 per cent as investors bet that last week’s abrupt resignation by prime minister Yoshihide Suga would usher in a successor more focused on protecting the nation’s economy from rising Covid-19 cases. 

Brent crude, the international oil benchmark, slid 0.7 per cent to $72.10 a barrel.



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