By Byron Kaye and Nikhil Nainan
SYDNEY/BENGALURU (Reuters) - Australian buy-now-pay-later (BNPL) company Zip Co Ltd
The move pits Zip against larger Australian BNPL provider Afterpay Ltd
Under the elaborately-structured deal, Zip said it will give 119 million of its shares, or just under a quarter of the company, to owners of unlisted QuadPay for the 86% of the target it does not already own.
Zip would issue the shares partly by giving a stake of itself to U.S. private equity firm Susquehanna International Group, in exchange for $200 million worth of derivative securities.
The derivatives valued Zip shares at a hefty premium to their most recent close, and shares of the Australian company jumped 39% on Tuesday to be in line with the implied price of the private equity firm's stake.
"The funding structure is very complicated, however at face value it provides flexibility and upside for both ZIP and (Susquehanna), incentivises and locks in management, and funds further growth in the QuadPay business," said RBC Capital Markets analyst Tim Piper in a client note.
Zip CEO Larry Diamond said in a statement that the U.S. was "a critical part of our global strategy and vital as merchants increasingly look for a global payments solution".
QuadPay co-CEOs Adam Ezra and Brad Lindenberg said in a joint statement that "by combining Zip's resources, geographic
coverage, data capabilities, category leadership and experience, we look forward to driving strong growth together in North America and across core markets".
The combined company would have about 3.5 million customers and more than 26,000 merchants, with annual revenue of over A$250 million, Zip said, closing on Afterpay which claims about five million customers.
Chinese internet giant Tencent Holdings Ltd <0700.HK> recently bought 5% stake of Afterpay, propelling its shares higher, months after Ant Financial, an affiliate of Alibaba Group Holding Ltd
($1 = 1.4738 Australian dollars)
(Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Christopher Cushing and Kim Coghill)