Regulatory Approval Received For Afterpay Merger With Block Inc

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Regulatory Approval Received For Afterpay Merger With Block Inc

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  • $39 billion deal is Australia’s largest ‘merger-buy-out‘ transaction 
  • Afterpay shareholders to own 18.5 percent of Block Inc (NYSE, ‘SQ‘)
  • Newly issued CDIs commence ASX trading 20 January 2022
  • ASX ticker ‘SQ2‘   
  • Block Inc. seeks to apply Blockchain technology to revolutionise payments system 

Afterpay Limited (‘Afterpay‘ or the ‘Company‘) is an operating platform that enables merchants to offer a ‘buy now pay later option to their customers. Afterpay’s service offering to merchants is integrated with the merchant’s website for online transactions using the merchant’s in-store point-of-sale facility. Customers do not incur upfront fees or interest on purchases. Afterpay settles with the merchant up-front, less Afterpay’s commission income and subsequently assumes responsibility for the customer’s debt. Afterpay then seeks to collect the funds owed by the customer, by way of instalments.   

Afterpay employs 1300 people throughout its operations across Australia and New Zealand, as well as the USA and UK.

$39 billion merger approved by Bank of Spain

Australia’s largest merger deal is set to proceed after final regulatory approval was received on 12 January 2022 from the Bank of Spain, allowing Block, Inc (NYSE. ‘SQ’) to proceed with its acquisition of Afterpay. Block was previously known as Square, Inc. 

Afterpay shareholders will own 18.5 percent of the significantly larger entity, post-merger. The transaction is being effected by the Scheme of Arrangement and is now unconditional. The Scheme implementation date is 1 February 2022, which means that Afterpay shares will not trade on ASX after 19 January 2022. Former Afterpay shareholders will receive Holding statements or confirmation advice for new Chess Depository Interests (‘CDIs‘) in Block that will be despatched on 2 February. The new Block CDIs will commence trading on ASX from January 20 under the ASX ticker ’SQ2’. Settlement will be on a deferred basis. Trading on a normal settlement basis will commence from 2 February. Trading of New Block Shares on NYSE will also commence on 2 February. 

The Afterpay success story is a reminder of the spectacular shareholder returns that can be generated by Founder-led companies. Afterpay adds to the Australian capital markets landscape the numerous examples of how the hunger of Founders, together with the alignment of interests, can be a powerful combination. 

The Future

Former Afterpay shareholders owning the soon to be issued CDIs in Block Inc, will have a 18.5 percent stake in a US$68 billion, NYSE-listed, digital payments business currently run by its Founder, Jack Dorsey. Jack Dorsey, who was a co-founder and CEO of Twitter, has been running Block since its launch in 2010.

Block is a fintech company that provides point-of-sale terminals servicing micro and SME merchants. Its point of difference is that it helps merchants sell more products and makes it easier for them to run and grow their businesses. It does this by providing ‘add-on’ services like software for payroll, invoicing and inventory tracking. It also offers working capital finance.      

Interestingly, Block is now seeking to develop into a financial services conglomerate that embraces blockchain technology; hence the name ‘Block’. Blockchain technology enables data to be transferred securely because of its extremely complex encryption system. It enables every cash movement to be monitored and recorded in a way that it cannot be deleted or altered. It is essentially a digital event book, where the information transfer does not require a centralised intermediary like a bank to identify and certify information. 

Block Inc, is a Founder-led company with global aspirations and a platform of valuable capabilities and services to merchants and consumers. It is at the forefront of emerging technologies that could re-define how consumers pay merchants for their goods. The basis of this change is blockchain technology. Blockchain technology has the potential to change the way of transacting and has profound implications for the future of banking institutions.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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