ASX200 breaks 7500 as Square Inc announces plans to buy Afterpay

The first trading day of the new month has started with a bang following news of Australia's largest-ever buy-out that propelled the ASX200 above 7500 for the first time.

Australia

The announcement by Square Inc (SQ) that it had agreed to buy Afterpay (APT) in an all-stock deal worth $29B (A$39B) values Afterpay shares at A$126.21, a 31% premium to Friday's closing price of $A96.66 but below the February high near A$160.00.

Afterpay allows consumers to purchase items on credit and pay later or Buy Now Pay Later (BNPL) with a series of instalments. It's extremely popular with younger consumers who do not have a credit card to buy clothes, beauty products, and homewares.

Square plans to integrate Afterpay into both its consumer Cash App and its Seller product for small businesses. Following the announcement, the stock rallied to a high of $125.00 before settling closer to $118.00 in the afternoon session.

The deal appears to benefit Afterpay’s ambitions to expand further into the US and other offshore markets. It also provides the founders of Afterpay with a sensible exit strategy when credit card companies, banks, payment companies, and Apple have begun developing their own BNPL products. 

Afterpay Daily Chart

The news of the Square Inc and Afterpay tie-up and a tie-up between energy giants Santos (STO) and Oil Search (OSH) has provided the impetus for the ASX200 to make a definitive break higher out of a two-month trading range between 7400 and 7200.

Technically there is scope for the ASX200 to extend its gains towards the top of the trend channel near 7575, supported by the prospect of further M&A activity in the coming months. 

ASX200 breaks 7500 as Square Inc announces plans to buy Afterpay

Source Tradingview. The figures stated areas of the 2nd of August 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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