Breadth divergence is a troubling sign for the stock market

Australian BNPL companies Zip, Sezzle scrap merger plans

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SYDNEY — Buy-now-pay-later rivals Zip Co.

and Sezzle Inc.

have scrapped the planned merger that they had hoped would create the scale to better compete in the crowded installment-payments industry.

The ASX-listed companies on Tuesday issued separate statements saying that they had mutually agreed to halt the merger, without immediately saying why. Both said the decision was in the best interests of shareholders.

Zip will pay Sezzle US$11 million to cover legal, accounting and other transaction-related costs.

The two companies had announced their combination in February. Zip Chief Executive Larry Diamond said at the time that the all-scrip deal would accelerate his company’s path to profitability by creating the consumer base necessary to attract the largest merchants.

Zip on Tuesday said that it continued to expect group profitability during its 2024 fiscal year.

“We believe that mutually terminating the merger agreement with Sezzle at this time is in the best interests of Zip and its shareholders, and will allow Zip to focus on its strategy and core business in the current environment,” Zip Chair Diane Smith-Gander said.

With inflation and rising interest rates denting consumer sentiment, buy-now-pay-later valuations have been badly hit during the recent decline in global tech stocks. Zip’s shares are down about 75% since the merger announcement and have lost more than 95% of their value since February 2021.

The failure of the merger comes less than four weeks after Latitude Group Holdings Ltd. scrapped its acquisition of Australian rival Humm Group Ltd.’s

consumer-finance operations, which includes buy-now-pay-later services. Latitude cited financial-market turmoil.

Zip said that it is well-capitalized to execute its strategy and still views the U.S. as a core market and a significant opportunity.

Sezzle said that it had US$71.0 million of cash on hand and available credit as of June 30, not including the US$11 million it will receive from Zip. It said it expects second-quarter underlying merchant sales to rise by between 0.9% and 2.2% from the previous year, with total income rising by between 2.5% and 6.1%.

“While we were excited by the potential of this transaction, our board and management team are laser-focused on our strategy and execution,” Sezzle Executive Chairman and Chief Executive Charlie Youakim said.

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