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Zip Merger Finally Sizzles Out

The Zip Co Ltd share price is finally soaring today after announcing the scrapping of their highly scrutinised proposed merger with Sezzle.

Zip and Sezzle have mutually agreed to cancel their plan to merge. Zip originally announced its intention to acquire Sezzle on 28 February for about $491 million. The Buy Now Pay Later (BNPL) company must now pay the smaller company Sezzle $11 million for costs associated with the merger including legal and accounting.

The primary reason for the breakup was due to the declining economy, piling up of bad debts and of course the very grim outlook for the BNPL sector as a whole.

Commenting on the news, Zip board chair Diane Smith-Gander said:

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 remains focussed on its strategic plan and returning to profit by the 2024 financial year. Zip also reiterated that its business ‘remains strong’ and it is continuing to see customer and transaction growth. The company highlighted that the US market is a “significant opportunity” and its core market.

However, most are not convinced. UBS analyst Tom Beedle said in a note to clients that the termination of proposed Sezzle merger adds more uncertainty to Zip’s outlook but may aid near term cash burn.

In a further attempt to qualm concerned investors, the company added:

“Zip is well capitalised to execute on its strategy and in line with previous guidance, Zip continues to expect to deliver group profitability during FY24.”

By all rights and concerns, the $500 million acquisition of a now 80 million market capitalization company was not a prudent business move. Conversely, Zip didn’t have nearly as poor a day as their proposed partner Sezzle did. Sezzle shares plummeted almost 40% after hearing the news that the merger was scrapped.

Despite this, both these downtrodden stocks are down well over 90% over the last 12 months and the turmoil has seemingly no end in sight.

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