* Square offers 30% premium in all-scrip bid for Afterpay
* Afterpay board unanimously recommends deal
* Afterpay U.S. sales soar in fiscal 2021
SYDNEY, Aug 2 (Reuters) - Square Inc, the payments
firm of Twitter Inc co-founder Jack Dorsey, will
purchase buy now, pay later pioneer Afterpay Ltd for
$29 billion, creating a transactions giant that will battle
banks and tech firms in the financial sector's fastest-growing
The takeover, Square's biggest deal to date and the largest
buyout ever of an Australian firm, underscores the popularity of
a business model that has upended consumer credit by charging
merchants a fee to offer small point-of-sale loans which
shoppers repay in interest-free instalments, bypassing credit
The buy now, pay later (BNPL) market has boomed in the past
year as homebound consumers used it to borrow and spend online
during the pandemic, and Apple Inc and Goldman Sachs
were the latest heavyweights reported last month to be
readying a version of the service.
Square's buyout could pave the way for more acquisitions,
with Mastercard Inc, Visa Inc, PayPal Holdings Inc
and others showing interest, said Christopher Brendler,
an analyst with brokerage group D.A. Davidson.
"(BNPL) is more mainstream now and (this deal) is going to
raise attention," he said.
Shares in Square surged 11%, while those in peer Affirm
Holdings Inc rose as much as 17%.
Afterpay shareholders will get 0.375 of Square class A stock
for every share they own, implying a price of A$126.21 per share
based on Square's Friday close, the companies said. Afterpay
shares closed at A$114.80, up 19%.
The buyout delivers a payday of almost A$2.5 billion ($1.8
billion) each for founders Anthony Eisen and Nick Molnar.
China's Tencent Holdings Ltd, which paid A$300 million
for 5% of Afterpay in 2020, will pocket A$1.7 billion.
The deal, which eclipses the previous record for a completed
Australian buyout, locks in a remarkable run for Afterpay, whose
stock was worth just A$10 in early 2020.
The Melbourne-based company has signed up millions of users
in the United States in the past year, making it one of the
fastest-growing markets for BNPL and spurring broad interest in
"Acquiring Afterpay is a 'proof of concept' moment for buy
now, pay later," Truist Securities analysts said, adding Square
would now be a "formidable" competitor for Paypal, unlisted
Swedish startup Klarna Inc and others.
Klarna was worth $46 billion in its last fundraising in
June. Shares in Australian BNPL peers Zip Co Ltd and
Sezzle Inc also closed higher on Monday.
"Not surprised those stocks are increasing on future
consolidation speculations," D.A. Davidson's Brendler said.
"Competition is heating up and they also have platforms that are
Talks between the two companies began more than a year ago
and Square was confident there was no rival offer, a person with
direct knowledge of the deal told Reuters.
Credit Suisse analysts said the tie-up seemed to be an
"obvious fit" with "strategic merit" based on cross-selling
payment products, and agreed a competing bid was unlikely.
The Australian Competition and Consumer Commission, which
would need to approve the transaction, said it had been notified
of the plan and "will consider it carefully once we see the
"Few other suitors are as well-suited as Square," said
Wilsons Advisory and Stockbroking analysts in a research note.
"With ... PayPal already achieving early success in their
native BNPL, other than major U.S. tech-titans (Amazon.com Inc
, Apple Inc) lobbying an 11-th hour bid, we
expect a competing proposal from a new party to be low-risk."
The deal includes a break clause worth A$385 million
triggered by certain circumstances such as if Square investors
do not approve the takeover.
BNPL firms lend shoppers instant funds, typically up to a
few thousand dollars, which can be paid off interest-free.
As they generally make money from merchant commission and
late fees - and not interest payments - they sidestep the legal
definition of credit and therefore credit laws.
That means BNPL providers are not required to run background
checks on new accounts, unlike credit card companies, and
normally request just an applicant's name, address and birth
date. Critics say that makes the system an easier fraud target.
For Afterpay, the deal with Square delivers a large customer
base in the United States, where its fiscal 2021 sales have
already nearly tripled to A$11.1 billion in constant currency
Square said it will undertake a secondary listing on the
Australian Securities Exchange to allow Afterpay shareholders to
trade in shares via CHESS depositary interests (CDIs).
Morgan Stanley advised Square on the deal, while Goldman
Sachs and Highbury Partnership consulted for Afterpay and its
($1 = 1.3622 Australian dollars)
(Reporting by Byron Kaye and Paulina Duran in Sydney, Shashwat
Awasthi in Bengaluru and Scott Murdoch in Hong Kong; additional
reporting by Niket Nishant and Sohini Podder in Bengaluru and
Supantha Mukherjee in Stockholm; Editing by Chris Reese;
Christopher Cushing and Saumyadeb Chakrabarty)