20 December 2021

ThinkSmart Limited

 ("ThinkSmart" or the "Company" which together with its subsidiaries is the "Group")

Proposed sale of shareholding in Clearpay to Afterpay

ThinkSmart Limited (AIM: TSL), a specialist digital payments platform business, today announces that it has agreed terms with Afterpay for ThinkSmart's subsidiary, ThinkSmart Europe, to sell its 10% holding in Clearpay in exchange for 1,650,000 shares in Afterpay, subject to the approval of ThinkSmart shareholders.

The Board believes this exchange of ThinkSmart's interest in Clearpay for the Consideration Shares represents a strong outcome for ThinkSmart shareholders and removes the uncertainty of the independent valuation process which could occur any time, at the election of Afterpay, after the change of control of Afterpay arising from the proposed takeover by Block (formerly Square, Inc) which is expected to occur in Q1 calendar 2022.

In agreeing to these terms, the Board is looking through the current market volatility and is focusing and prioritising on both the volume and the ratio of shares in the exchange. The final ratio of shares agreed is equivalent to that prevailing at the point of the announcement of the Block takeover of Afterpay.

·    Based on the Block closing share price on 17 December 2021, and the agreed ratio of 0.375 Block shares for every Afterpay share (and using 1.3239 USD:1 GBP) on implementation of the Scheme, the Consideration Shares equate to a value of £78.1m which, together with the £6.5m of cash and other assets (being £9.5m of net assets at 30 June 2021 less £3m returned to shareholders on 8 December 2021) equates to £84.6m

·    This is broadly in line with ThinkSmart's closing market capitalisation on 17 December 2021 of £86.3m

·    Block share price on 17 December closed 30% below its average since 2 August 2021 but despite this recent reduction in the value of Block shares the Directors believe there is significant potential for future value accretion

Ned Montarello, Executive Chairman of ThinkSmart, said "We believe this outcome provides our shareholders with an opportunity to continue the exciting Afterpay journey now directly with Block and we as a Board see continued long term value accretion with this outcome."

The Disposal will be put to a vote of ThinkSmart shareholders at a meeting on 14 January 2022 and is unanimously supported by the Board.

The Directors consider the Disposal to be in the best interests of the Company and ThinkSmart shareholders as a whole and unanimously recommend that shareholders vote in favour of the Disposal, as they intend to do in respect of their own beneficial holdings amounting to, in aggregate, 44,022,458 Ordinary Shares representing approximately 41.30% of the Company's issued share capital. 

The Disposal is conditional upon ThinkSmart shareholder approval being obtained at the General Meeting which is to be held virtually by videoconference at 4.30pm (AWST) and 8.30am (GMT) on Friday 14 January 2022.

The Circular, including  the Notice, will shortly be posted to Shareholders and a copy will also be made available to view on the Company's website at www.thinksmartworld.com.

Prior to publication the information communicated in this announcement was deemed by the Company to constitute inside information for the purposes of article 7 of the Market Abuse Regulations (EU) No 596/2014 as amended by regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations No 2019/310 ('MAR'). With the publication of this announcement, this information is now considered to be in the public domain.

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Additional Information

The following are extracts from the Company's Circular to Shareholders which will be made available in due course.

1. Introduction

The Company announced today that it and its subsidiary, ThinkSmart Europe, have entered into a conditional agreement with Afterpay pursuant to which ThinkSmart Europe has agreed to sell the Clearpay Shares to Afterpay in consideration of the issue and allotment to it of the Consideration Shares.

As a consequence of the size of the consideration arising from the Disposal relative to the Company's market capitalisation, pursuant to Rule 15 of the AIM Rules, the Disposal is deemed to constitute a disposal resulting in a fundamental change of business of the Company, which requires the approval, by way of an ordinary resolution, of the ThinkSmart shareholders at the General Meeting.

2. Impact of COVID-19 on the General Meeting

Due to the uncertainty caused by the evolving COVID-19 situation the General Meeting will be held in accordance with the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 (Cth) and the Company will conduct the General Meeting via live videoconference with shareholders (and their proxies) being able to cast votes in real time during the General Meeting via Lumi voting software. Alternatively, shareholders may vote by lodging a Proxy Form by the required cut-off time which will be set out in the Notice of General Meeting. Depositary Interests ("DIs") Holders may attend the Meeting via the live videoconference but will not be permitted to vote at the General Meeting. For their votes to be counted, DI Holders must submit their CREST Voting Instruction to the Company's agent by the required cut-off time that will be set out in the Notice of General Meeting.  Alternatively, DI holders can vote using a Form of Instruction as per the instruction that will be set out in the Notice of General Meeting.

3. Background to and reasons for Disposal

Pursuant to the terms of a sale and purchase agreement dated 22 August 2018 and made between Afterpay, ThinkSmart Europe and the Company (the "Clearpay SPA"), ThinkSmart Europe sold 90% of its shareholding in Clearpay to Afterpay for a consideration of 1,000,000 shares in the capital of Afterpay (which at the time of the 23 August 2018 announcement was valued at AUD$18.55m) and retained the Clearpay Shares. The retained Clearpay Shares were subject to a put and call option in the Clearpay SPA which was disclosed in the Company's 23 August 2018 announcement and various announcements subsequent to that date.

The value of the Afterpay group and of the Clearpay Shares has risen significantly since then as Shareholders have seen by the increase in fair value that the Directors have recognised in recent financial statements published by the Company, and earlier this year Afterpay agreed the terms of a takeover by Block, Inc. (formerly Square, Inc. "Block") such takeover to be effected by way of the Scheme.

Under the Clearpay SPA, there was a put and call option relating to the Clearpay Shares which enabled Afterpay or ThinkSmart Europe to buy or sell the Clearpay Shares in certain circumstances. As announced on 2 August 2021, the planned takeover of Afterpay by Block will give Afterpay the right to bring forward its call option and exercise it anytime following the change of control occurring.  If Afterpay has not exercised the call option by 23 February 2024 then ThinkSmart Europe could exercise the put option.

However, Afterpay has approached the Company with a view to agreeing the terms on which the Clearpay Shares can be sold to Afterpay outside of the terms of the Clearpay SPA, and I am pleased to be able to let you know that Afterpay, ThinkSmart and ThinkSmart Europe have now agreed that Afterpay will acquire the Clearpay Shares in consideration for the issue and allotment to ThinkSmart Europe of the Consideration Shares, being 1,650,000 fully paid ordinary shares in the capital of Afterpay. The parties have entered into the ThinkSmart SPA to give effect to this agreement.  The Disposal removes uncertainty regarding the timing of when Afterpay may exercise their call option and also the exercise price that may be determined at that time from the valuation process, together with any impact that any post-takeover restructuring may have on the future value of Clearpay. The Disposal also removes the uncertainty and possible delay that could arise under the terms of the valuation mechanism set out in the put and call options.

Based on the closing share price of Afterpay on 17 December 2021 of AUD$82.67 (and using 1.8575 AUD: 1 GBP) the Consideration Shares would have a market value of £73.4m. Pursuant to the terms of the Scheme, Afterpay's shares will be converted to Block shares at the ratio of 0.375 Block shares for every Afterpay share on implementation of the Scheme.  At this ratio and based on the Block closing share price on 17 December 2021 of US$167.06 (and using 1.3239 USD:1 GBP) then the 1.65m Afterpay Consideration Shares equate to a market value of £78.1m.  Reflecting the recent fall in the value of both Afterpay and Block's share price, along with most fintech stocks, and instead using the average volume weighted Block share price since the proposed takeover of Afterpay was announced on 2 August 2021 of US$238 (and using 1.3239 USD:1 GBP) then the value of the Consideration Shares equate to £108m. Despite this recent reduction in the value of Block shares the Directors believe there is significant potential for future value accretion.

Based on the closing share price of ThinkSmart on 17 December 2021 of 81 pence this equates to a market capitalisation of £86.3m, or £79.8m excluding cash and other assets of £6.5m (being £9.5m at 30 June 2021 less the £3m capital and dividend return paid on 8 December 2021). The accounting fair value of the Clearpay Shares is a book value of £125m at the 30 June 2021 valuation, however there has been a 31% reduction in the Afterpay GBP equivalent share price from 30 June 2021 to 17 December 2021. As noted in ThinkSmart's FY21 annual report, Afterpay valued its put option liability at AUD$99.9m (c£54.2m) at 30 June 2021.

Provided that ThinkSmart shareholder approval is obtained, 1.65m Afterpay shares will be issued to ThinkSmart before the earliest possible record date for the Scheme, being 21 January 2022, which means that the Consideration Shares will then be acquired on implementation of the Scheme and ThinkSmart Europe will become a shareholder in Block.

The Disposal is not subject to or conditional upon the implementation of the Scheme. However, if ThinkSmart does not obtain shareholder approval for the Disposal on or before 17 January 2022 the ThinkSmart SPA cannot be completed and the put and call option contained in the Clearpay SPA will remain in force on its current terms. Similarly, on completion of the ThinkSmart SPA the put and call option will expire and be of no further force and effect. If Shareholder approval is obtained but the Block Scheme is not implemented, ThinkSmart Europe will retain the Consideration Shares and remain a shareholder in Afterpay.

In addition, whilst under the terms of the Clearpay SPA there was a requirement for ThinkSmart to share up to 35 per cent. of the consideration received under the Clearpay SPA with the Clearpay ESOP holders, it should be noted that as part of the Disposal it has been agreed that any options granted under the ESOP for Clearpay shares will be satisfied by the issue and allotment of new shares in the capital of Afterpay by Afterpay and will not impact the Consideration Shares, and as a result the Clearpay SPA will no longer be effective and ThinkSmart will have no obligations with regards to the ESOP under the Disposal. 

The Board therefore believes the Disposal represents a strong outcome for ThinkSmart shareholders in terms of the number of Afterpay shares being received and also by removing the uncertainties referred to above whilst giving ThinkSmart the ability to continue to benefit from any future accretion in the value of Afterpay, and Block post-takeover, with the flexibility to realise this value at any time. There are no restrictions on ThinkSmart Europe's ability to sell the Consideration Shares and any shares derived therefrom as part of the Scheme.

In agreeing to these terms, the Board is looking through the current market volatility and is focusing and prioritising on both the volume and the ratio of shares in the exchange. The final ratio of shares agreed is equivalent to that prevailing at the point of the announcement of the Block takeover of Afterpay.

In accordance with the disclosure requirements of Schedule 4 of the AIM Rules the particulars of the Disposal and the name of the buyer of the Clearpay Shares have been summarised earlier in this section. The assets which are subject to the Disposal are the Clearpay Shares, and the profits attributable to the Clearpay Shares are a £71.37m non-cash fair value gain reported in the Company's 30 June 2021 annual financial statements.  The value of the Clearpay Shares in accordance with the Disposal is £73.4 million (based on closing price of Afterpay shares on 17 December 2021 price), which differs from the book value reported in the Company's 30 June 2021 financial statement of £125m, and the reasons for the difference are described above.

The effect on the Company is that it will receive the Consideration Shares for its Clearpay Shares, which, assuming the Scheme is implemented, will be exchanged for 618,750 Block shares which based on the closing price of Block shares on 17 December 2021 (using 1.3239 USD:1 GBP) is £78.1m. Both Block and Afterpay are companies with publicly traded shares that are listed on stock exchanges.

The application of the sale proceeds is described below in section 4.

On completion of the ThinkSmart SPA Ned Montarello will resign as a director of Clearpay.

4. Use of Proceeds

As described above the Company will receive Consideration Shares as consideration for the sale of the Clearpay Shares. Assuming that the takeover of Afterpay by Block ("Scheme") proceeds, the Company will receive 618,750 Block shares in exchange for the Consideration Shares.  At the date of this announcement, the Directors have not determined the future strategy regarding the shareholding in Afterpay, or Block if the Scheme is implemented, and whether they will retain such shareholding or seek to sell such shareholding.  Accordingly, approval will be sought at the General Meeting to give the Directors authority to deal with the Consideration Shares, or Block shares if the Scheme proceeds, in such manner as they see fit.

However, it is expected that in due course the Directors will seek to return value to shareholders once a form of return of value has been determined by the Board, mindful of the Company's existing operating businesses and future cash requirements to meet running costs.

5. Strategy for the Continuing Group

The Company's operating business is the managed wind-down of the leasing business and the provision of the outsourced call centre customer service and support service to Clearpay.  Both of these businesses are expected to continue notwithstanding the Disposal. The Company intends to return any surplus cash, whether from the sale of the Consideration Shares, or the Block shares if the Scheme proceeds, or from its operating business, to shareholders as quickly and tax efficiently as possible.

6. Information on Afterpay and Block

The buyer of the Clearpay Shares is Afterpay.  As announced by the Company on 2 August 2021 and 14 December 2021, Block is to acquire Afterpay by way of the Scheme.  Block is listed on the New York Stock Exchange (NYSE: SQ). Afterpay is listed on the Australian Stock Exchange (ASX: APT).

7. General Meeting

The Disposal is conditional upon, amongst other things, ThinkSmart shareholder approval being obtained at the General Meeting which is to be held virtually at 4.30pm (AWST) and 8.30am (GMT) on Friday 14 January 2022.

8. Directors' Recommendation

The Directors consider the Disposal to be in the best interests of the Company and the Shareholders as a whole and unanimously recommend the Shareholders vote in favour of the Resolution, as they intend to do in respect of their own beneficial holdings amounting to, in aggregate, 44,022,458 Ordinary Shares representing approximately 41.30% of the Company's issued share capital. 

DEFINITIONS

The following definitions and technical terms apply throughout this document, unless the context otherwise requires:

"Afterpay" Afterpay Limited;

"AIM" the AIM market, being a market of that name and operated by the London Stock Exchange;

"AIM Rules" the AIM Rules for Companies (as amended from time to time);

"Board" or "Directors" the board of directors of the Company;

"Circular" this document, containing details of the Disposal;

"Clearpay" Clearpay Finance Limited;

"Clearpay Shares" the 6,000,000 fully paid B ordinary shares of £0.01 each in the capital of Clearpay held by ThinkSmart Europe;

"Completion" completion of the Disposal expected to occur on or about 20 January 2022;

"Consideration Shares" the 1,650,000 fully paid ordinary shares in the capital of Afterpay to be allotted to ThinkSmart Europe in consideration for the sale by it to Afterpay of its shareholding in Clearpay;

"Disposal" the proposed sale of ThinkSmart Europe's remaining interest in Clearpay;

"ESOP" the employee share ownership plan in relation to Clearpay;

"General Meeting" the general meeting of the Company to be held virtually at 8.30am (GMT) and 4.30pm (AWST) on Friday 14 January 2022;

"Group" the Company and its subsidiaries and subsidiary undertakings;

"Scheme" the scheme of arrangement for the acquisition on a share for share basis, at a ratio of 0.375 Block shares per Afterpay share, of Afterpay by Lanai (AU) 2 Pty Ltd, a wholly owned indirect subsidiary of Block, Inc. dated 2 August 2021, as amended on 7 December 2021, and which became legally effective on 17 December 2021;

"Shareholders" holders of Ordinary Shares;

"ThinkSmart" or "Company" ThinkSmart Limited; and

 "ThinkSmart SPA" the conditional sale and purchase agreement relating to the sale of the Clearpay Shares.

Notes to Editors

About ThinkSmart Limited

ThinkSmart is a specialist digital payments platform business. It offers investors unique exposure to the UK 'Buy Now Pay Later' payments sector undergoing exponential growth, driven by ongoing digital transformation of consumer shopping habits and financial services.