Square Falls On Fears It Is Overpaying To Buy Afterpay

© Reuters.

By Dhirendra Tripathi

Investing.com – Square (NYSE:SQ) stock was 4% lower in Monday’s premarket due to concerns that it is overpaying for loss-making Australian payments group Afterpay.

Afterpay (ASX:APT) stock jumped 19% to A$114.80 (approximately $84.4) in Monday's trading in Sydney.

The all-stock deal values the ‘buy-now, pay-later’ platform at $29 billion and is aimed to make the combined entity a key global payments company.

Under the deal, Afterpay shareholders will receive a fixed exchange ratio of 0.375 share of Square for each Afterpay share. Square may elect to pay 1% of total consideration in cash.

Based on Square’s closing price of $247.26 on July 30, this represents a price of A$126.21 per Afterpay share, a premium of approximately 31% to Afterpay’s Friday closing price of A$96.66. Following the transaction, Afterpay shareholders are expected to own approximately 18.5% of the combined company on a fully diluted basis.

BNPL platforms reaped the benefit of COVID when people, short on cash, have used them to buy products and services now and pay later.

Square attributed the Afterpay purchase to shifting consumer preferences away from credit cards, especially among younger consumers, consistent demand from merchants for new ways to grow their sales, and the global growth in omnichannel commerce.

Much of Afterpay’s revenue comes from retail merchants, who pay the company on a revenue-share basis on each order placed by the customer along with a fixed fee.

Backed by Twitter’s Jack Dorsey, Square plans to integrate Afterpay into its existing Seller and Cash App business units, enable even the smallest of merchants to offer BNPL at checkout and give Afterpay consumers the ability to manage their installment payments directly in Cash App.