Payments processor StoneCo Ltd., which counts Warren Buffett among its top investors, said it signed a definitive agreement to combine business with Brazil software firm Linx SA for about $1.1 billion.
The deal will be implemented through a merger of shares in a cash-and-stock transaction, Stone said in a filing after markets closed. The base exchange ratio represents a total of 33.7625 reais ($6.3) for each Linx share, valuing the company at more than 6 billion reais. In a separate filing, Stone said it’s planning a $1 billion share offer to finance the acquisition.
Talks of the potential business combination sent shares surging on Tuesday. Stone climbed as much as 17% in New York to an all-time high. Linx jumped as much as 36% in Sao Paulo to its highest price since February. The offer represents a premium of about 42% over Linx’s volume-weighted average price of the past two months, Stone said.
The transaction is subject to approval by Brazil’s antitrust regulator and Linx’s shareholders, according to the filing.
The combination “makes sense as it marries the hardware, software and services that on-line and store-based retailers need, especially for omnichannel success,” Bloomberg Intelligence analyst Julie Chariell wrote before the deal was confirmed.
Stone initially provided point-of-sale software to merchants to handle card payments and has recently expanded to new products, such as lending. Buffett’s Berkshire Hathaway owns an approximately 8% stake in the company, according to data compiled by Bloomberg. The fintech firm has also lured investors like Jack Ma and 3G Capital founders Jorge Paulo Lemann, Marcel Telles and Carlos Alberto Sicupira.
In addition to boosting the number of clients, a combination between the firms could help them “reduce churn by improving loyalty,” Bradesco BBI analyst Victor Schabbel wrote in a note.