European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

In my previous insight <a href="https://www.smartkarma.com/insights/europcar-is-again-on-the-driving-seat" target="_blank" data-smartkarma-citation="insights:53577" rel="noopener">Europcar Is Again on the Driving Seat</a>, I recommended Long Europcar (TP €0.58, DCF based).
On 28 July, a consortium led by <a href="https://www.smartkarma.com/entities/volkswagen-ag-pref" target="_blank" data-smartkarma-citation="entities:734:1" rel="noopener">Volkswagen (Pref) (VOW3 GY)</a>, together with Attestor fund and Pon Holdings transport group, entered a tender offer support agreement setting T&amp;Cs for the acquisition of <a href="https://www.smartkarma.com/entities/europcar-mobility-group" target="_blank" data-smartkarma-citation="entities:21457:1" rel="noopener">Europcar Mobility Group (EUCAR FP)</a>.
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The offer is €0.50/share (vs. € 0.44/share on the offer discussed in June, c. 14% higher).
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The premium compared to the prior closing is c. 3% and implies valuing the group at around €2,500 mn. Volkswagen's intention is to regain a controlling stake in Europcar (Volkswagen sold Europcar in 2006 for €3,300 mn).
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There is a potential price supplement of €0.01 if a 90% squeeze-out threshold is reached by the deal's completion.
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The Board of Europcar "favourably welcomed" the planned deal.
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This deal is highly likely to close, in my view. Gross spread (to €0.51, including the success payment) is 2.4%, c. 4.7% annualized, assuming deal closes in 6 months. Recommendation is long EUCAR FP.
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In my previous insight Europcar Is Again on the Driving Seat, I recommended Long Europcar (TP €0.58, DCF based).
On 28 July, a consortium led by Volkswagen (Pref) (VOW3 GY), together with Attestor fund and Pon Holdings transport group, entered a tender offer support agreement setting T&amp;Cs for the acquisition of Europcar Mobility Group (EUCAR FP).


The offer is €0.50/share (vs. € 0.44/share on the offer discussed in June, c. 14% higher).


The premium compared to the prior closing is c. 3% and implies valuing the group at around €2,500 mn. Volkswagen's intention is to regain a controlling stake in Europcar (Volkswagen sold Europcar in 2006 for €3,300 mn).


There is a potential price supplement of €0.01 if a 90% squeeze-out threshold is reached by the deal's completion.


The Board of Europcar "favourably welcomed" the planned deal.



This deal is highly likely to close, in my view. Gross spread (to €0.51, including the success payment) is 2.4%, c. 4.7% annualized, assuming deal closes in 6 months. Recommendation is long EUCAR FP.


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Vicki Bryan

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Bloomberg reported that <a href="https://www.smartkarma.com/entities/nikola-corp" target="_blank" data-smartkarma-citation="entities:29029:1" rel="noopener">Nikola Corp (NKLA US)</a> ex CEO Trevor Milton has <a href="https://www.bloomberg.com/news/articles/2021-08-06/nikola-s-milton-turns-to-lawyers-who-defended-tesla-s-musk?sref=Q1XEaVVD" target="_blank" rel="noopener">hired the s</a><a href="https://www.bloomberg.com/news/articles/2021-08-06/nikola-s-milton-turns-to-lawyers-who-defended-tesla-s-musk?sref=Q1XEaVVD" target="_blank" rel="noopener">ame lawyers</a> who defended <a href="https://www.smartkarma.com/entities/tesla-motors-inc" target="_blank" data-smartkarma-citation="entities:20279:1" rel="noopener">Tesla Motors (TSLA US)</a> CEO Elon Musk in his securities fraud conviction in 2018.He might also consider Jay Clayton.Few lawyers have been more helpful to Elon Musk than ex SEC chair Jay Clayton, given his astonishing leniency with Elon over his fake buyout of Tesla which cost investors $20 billion in evaporated market cap.

Bloomberg reported that Nikola Corp (NKLA US) ex CEO Trevor Milton has hired the same lawyers who defended Tesla Motors (TSLA US) CEO Elon Musk in his securities fraud conviction in 2018.He might also consider Jay Clayton.Few lawyers have been more helpful to Elon Musk than ex SEC chair Jay Clayton, given his astonishing leniency with Elon over his fake buyout of Tesla which cost investors $20 billion in evaporated market cap.

Nikola's Milton Just Hired Elon's Lawyers

<a href="https://www.smartkarma.com/entities/nikola-corp" target="_blank" data-smartkarma-citation="entities:29029:1" rel="noopener">Nikola Corp (NKLA US)</a> ousted <a href="https://www.bloomberg.com/news/articles/2021-07-29/nikola-founder-charged-for-allegedly-misleading-investors?sref=Q1XEaVVD" target="_blank" rel="noopener">founder/CEO Trevor Milton was charged in federal court today with criminal and civil fraud</a> for lying to investors for years about “nearly every aspect of the business” to juice the stock price.This comes just two weeks after <a href="https://www.smartkarma.com/entities/tesla-motors-inc" target="_blank" data-smartkarma-citation="entities:20279:1" rel="noopener">Tesla Motors (TSLA US)</a> CEO Elon Musk defended himself in court over his role in <a href="https://www.bloomberg.com/news/articles/2021-07-13/musk-keeps-temper-in-check-in-tesla-solarcity-trial-testimony?sref=Q1XEaVVD" target="_blank" rel="noopener">pushing Tesla in 2016 to buy SolarCity</a> for an insupportable $2 billion without revealing its near-bankruptcy distress in order to bail out his relatives who ran it. Tesla already paid $60 million last year to settle the case, but Musk, true to form, stubbornly resists any efforts to hold him accountable for just about anything, no matter the harm.It could cost him $2 billion to refund the purchase price for SolarCity if he loses, and the Tesla shareholders suing have a credible case, but Musk is used to getting off without serious consequences.After all, he has defied courts, federal regulators, police, state and local government authorities for years with little more than a slap on the wrist.But this year things have changed, whether Elon Musk realizes it yet or not.

Nikola Corp (NKLA US) ousted founder/CEO Trevor Milton was charged in federal court today with criminal and civil fraud for lying to investors for years about “nearly every aspect of the business” to juice the stock price.This comes just two weeks after Tesla Motors (TSLA US) CEO Elon Musk defended himself in court over his role in pushing Tesla in 2016 to buy SolarCity for an insupportable $2 billion without revealing its near-bankruptcy distress in order to bail out his relatives who ran it. Tesla already paid $60 million last year to settle the case, but Musk, true to form, stubbornly resists any efforts to hold him accountable for just about anything, no matter the harm.It could cost him $2 billion to refund the purchase price for SolarCity if he loses, and the Tesla shareholders suing have a credible case, but Musk is used to getting off without serious consequences.After all, he has defied courts, federal regulators, police, state and local government authorities for years with little more than a slap on the wrist.But this year things have changed, whether Elon Musk realizes it yet or not.

Nikola's Ex CEO Trevor Milton Arrested for Lying to Investors. Some Ask, "What About Elon?"

<div>
<div>
<h3>Trends</h3>
</div>
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Discounts have not kept a clear trend since mid-June.
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<h3>Interesting situations and trades</h3>
</div>
</div>
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<a href="https://www.smartkarma.com/entities/carlsberg-a-s" target="_blank" data-smartkarma-citation="entities:22320:1" rel="noopener">Carlsberg A/S (CARLB DC)</a> B shares (with 1/10th of the voting rights of the A shares) are trading at a 18.3% discount (down from July, coming from a 28.4% discount on 19 April) vs. the A shares), some demand for illiquid A shares seems to be the explanation. Maintain Long B shares/short A shares on, if you can get hold of any A shares.
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<a href="https://www.smartkarma.com/entities/bayerische-motoren-werke-ag" target="_blank" data-smartkarma-citation="entities:21591:1" rel="noopener">Bayerische Motoren Werke AG (BMW GR)</a> exhibited a trend towards a reduction of the discount of preferred shares, until March 2020. The discount has tightened to 13.8% (vs. 22.1% by mid-April). The discount is approaching pre-Covid levels. Maintain long BMW prefs, short common shares on, with a target of a 12% discount.
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<a href="https://www.smartkarma.com/entities/fuchs-petrolub-se" target="_blank" data-smartkarma-citation="entities:21624:1" rel="noopener">Fuchs Petrolub SE (FPE GR)</a>'s preference shares premium seems to vary within a range, which is probably liquidity related. It has tightened to 22.3% (down from 29.4% by mid-February and 34.4% in my October report). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote. They have never stated they would consolidate and pride to be #1 among the independent suppliers of lubricants.
Although there is no reason why the voting rights should be specially dear in Fuchs's case, voting rights are still valuable and neither the dividend advantage of the preferred shares nor their being members of several midcap indexes (Prime Standard/MDAX; STOXX Europe 600; DAXplus Familiy 30) justify the large premium, in my view. Maintain the trade long common/short prefs on, with a 10% target.
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<a href="https://www.smartkarma.com/entities/henkel-ag-co-kgaa" target="_blank" data-smartkarma-citation="entities:21646:1" rel="noopener">Henkel AG &amp; Co KGaA (HEN3 GR)</a> shows a long-term trend towards a reduction of the premium of the preferred shares. The premium has tightened to 11.5% (vs. 15.7% by mid-May). Maintain the trade short prefs/long common shares with a 10% premium target.
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Voting rights are valuable in a company like <a href="https://www.smartkarma.com/entities/volkswagen-ag" target="_blank" data-smartkarma-citation="entities:21738:1" rel="noopener">Volkswagen (VOW GR)</a>. Prefs discount has widened to 25.9% (vs. 20.5% by mid-May, 16.6% by mid-April and 31.8% on 18 March, highest levels since November 2009). Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, the ordinary shares are also liquid. The shareholder structure of Volkswagen is stable, and there seems to be no reason why the discount of the prefs should widen. Volkswagen was considering a separate listing of its Porsche sports car brand in a deal that could boost its valuation, according to Bloomberg, but the company seems to have put those plans on ice. <a href="https://www.smartkarma.com/entities/traton-se" target="_blank" data-smartkarma-citation="entities:28140:1" rel="noopener">Traton SE (8TRA GR)</a>, a subsidiary majority owned by Volkswagen, is squeezing out the minorities (both ordinary and preferred shares) in <a href="https://www.smartkarma.com/entities/man-se" target="_blank" data-smartkarma-citation="entities:21670:1" rel="noopener">MAN SE (MAN GR)</a>. Recommendation is to avoid this trade for the time being.
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</ul>
</div>
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<a href="https://www.smartkarma.com/entities/danieli-c-officine-meccaniche" target="_blank" data-smartkarma-citation="entities:21177:1" rel="noopener">Danieli &amp; C. Officine Meccaniche (DAN IM)</a>:  the mandatory conversion and extraordinary dividend were approved on the shareholders meetings on 28 October. The conversion date is yet to be announced but expected soon (I am aware I have been repeating this since November, but there has no been any further update from Danieli). Since announcement, the adjusted spread has ranged between -5.48% and 7.69%. It is currently 1.3%. Long Danieli ords/short Danieli savings shares, if and when the discount widens.</li>
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<a href="https://www.smartkarma.com/entities/telecom-italia-sp-a" target="_blank" data-smartkarma-citation="entities:21075:1" rel="noopener">Telecom Italia Sp A (TIT IM)</a> savings shares are trading at a 10.2% premium to ordinary shares (vs. a 7.9% premium by mid-May). The market may think of a conversion of savings into ords à la Buzzi Unicem or Danieli, which makes financial sense as it would save the savings' dividend advantage. That would dilute the voting power of Vivendi (23.943% of the votes), albeit Vivendi could put its capital to better use than keeping an investment in Telecom Italia. Short savings/long ords.</li>
</ul>
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<a href="https://www.smartkarma.com/entities/grifols-sa" target="_blank" data-smartkarma-citation="entities:21274:1" rel="noopener">Grifols SA (GRF SM)</a>B shares are trading at a 35.0% discount (vs. 36.1% by mid-April and 39.7% by mid-February), there is a trend towards the tightening of this discount since March 2020 lows, albeit it is taking some time. There are some issues around Grifols leverage and some creative solutions to keeping it contained. The Covid-related antitakeover provisions issued by the Spanish Government mean that the voting rights are less valuable now. Also, the Spanish government plans to introduce double voting rights for "loyal" shareholders (those who have kept the shares for at least two years). Moreover, the by-laws contain a poison pill that should significantly reduce the discount in case of a takeover attempt. The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares (traded on Nasdaq), short A shares (traded in Madrid). The target is a 27% discount. Please note there is FX risk, which can be hedged.
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The current discount in <a href="https://www.smartkarma.com/entities/atlas-copco-ab" target="_blank" data-smartkarma-citation="entities:22282:1" rel="noopener">Atlas Copco AB (ATCOA SS)</a> B shares vs. A shares is 15.2%  and seems to be on a widening trend.
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On 10 May, Industrivärden divested its entire holding in <a href="https://www.smartkarma.com/entities/ssab-ab" target="_blank" data-smartkarma-citation="entities:22492:1" rel="noopener">SSAB AB (SSABA SS)</a> . Top shareholder is now LKAB (Luossavaara-Kiirunavaara Aktiebolag), a government owned Swedish mining company. LKAB is now consolidating its influence in SSAB "in order to take responsibility and ensure that the company continues to have a clear industrial ownership influence at a time when the steel industry is facing major change". On 7 June, LKAB communicated its increased holding in SSAB (16.0% of the votes and 10.5% of the capital). The discount has tightened to 11.3%, lower than July, due to LKAB not increasing its stake. It seems the time to go long B shares/short A shares.
</li>
</ul>
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<ul style="list-style-type: disc;">
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The discount in <a href="https://www.smartkarma.com/entities/volvo-ab" target="_blank" data-smartkarma-citation="entities:22521:1" rel="noopener">Volvo AB (VOLVB SS)</a> B shares has slightly tightened since mid-June, from 3.0% to 2.7% (vs. 0.8% discount by mid-February). Still highest levels since January 2016.
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The discount of non-voting <a href="https://www.smartkarma.com/entities/roche-holding-ag-77bd09c9-b0c2-45ea-98f1-6a7ca01dc9c5" target="_blank" data-smartkarma-citation="entities:27906:1" rel="noopener">Roche Holding AG (ROG SW)</a> shares has widened to 7.9% (vs. 6.6% by mid-June, and it recently reached 8%), an unseen level since November 2011. The Hoffman family and related holds 45% of the voting rights (shareholder pooling agreement) whilst Novartis holds 33.3% of the voting rights. LTM average daily liquidity (in number of shares traded) for non-voting is 1,656k and 73k, for voting shares. So voting shares have blue-chip liquidity in their own right.
</li>
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The discount in <a href="https://www.smartkarma.com/entities/schroders-plc" target="_blank" data-smartkarma-citation="entities:22134:1" rel="noopener">Schroders PLC (SDR LN)</a> has widened to 28.4% (vs 25.7% by mid-June, 30.6% by mid-March and 34.1% by mid-February). I would maintain long non-voting/short voting shares on.
</li>
</ul>
</div>
<div>
Please read on for table and charts.
</div>



Trends



Discounts have not kept a clear trend since mid-June.



Interesting situations and trades





Carlsberg A/S (CARLB DC) B shares (with 1/10th of the voting rights of the A shares) are trading at a 18.3% discount (down from July, coming from a 28.4% discount on 19 April) vs. the A shares), some demand for illiquid A shares seems to be the explanation. Maintain Long B shares/short A shares on, if you can get hold of any A shares.


Bayerische Motoren Werke AG (BMW GR) exhibited a trend towards a reduction of the discount of preferred shares, until March 2020. The discount has tightened to 13.8% (vs. 22.1% by mid-April). The discount is approaching pre-Covid levels. Maintain long BMW prefs, short common shares on, with a target of a 12% discount.


Fuchs Petrolub SE (FPE GR)'s preference shares premium seems to vary within a range, which is probably liquidity related. It has tightened to 22.3% (down from 29.4% by mid-February and 34.4% in my October report). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote. They have never stated they would consolidate and pride to be #1 among the independent suppliers of lubricants.
Although there is no reason why the voting rights should be specially dear in Fuchs's case, voting rights are still valuable and neither the dividend advantage of the preferred shares nor their being members of several midcap indexes (Prime Standard/MDAX; STOXX Europe 600; DAXplus Familiy 30) justify the large premium, in my view. Maintain the trade long common/short prefs on, with a 10% target.


Henkel AG &amp; Co KGaA (HEN3 GR) shows a long-term trend towards a reduction of the premium of the preferred shares. The premium has tightened to 11.5% (vs. 15.7% by mid-May). Maintain the trade short prefs/long common shares with a 10% premium target.


Voting rights are valuable in a company like Volkswagen (VOW GR). Prefs discount has widened to 25.9% (vs. 20.5% by mid-May, 16.6% by mid-April and 31.8% on 18 March, highest levels since November 2009). Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, the ordinary shares are also liquid. The shareholder structure of Volkswagen is stable, and there seems to be no reason why the discount of the prefs should widen. Volkswagen was considering a separate listing of its Porsche sports car brand in a deal that could boost its valuation, according to Bloomberg, but the company seems to have put those plans on ice. Traton SE (8TRA GR), a subsidiary majority owned by Volkswagen, is squeezing out the minorities (both ordinary and preferred shares) in MAN SE (MAN GR). Recommendation is to avoid this trade for the time being.






Danieli &amp; C. Officine Meccaniche (DAN IM):  the mandatory conversion and extraordinary dividend were approved on the shareholders meetings on 28 October. The conversion date is yet to be announced but expected soon (I am aware I have been repeating this since November, but there has no been any further update from Danieli). Since announcement, the adjusted spread has ranged between -5.48% and 7.69%. It is currently 1.3%. Long Danieli ords/short Danieli savings shares, if and when the discount widens.

Telecom Italia Sp A (TIT IM) savings shares are trading at a 10.2% premium to ordinary shares (vs. a 7.9% premium by mid-May). The market may think of a conversion of savings into ords à la Buzzi Unicem or Danieli, which makes financial sense as it would save the savings' dividend advantage. That would dilute the voting power of Vivendi (23.943% of the votes), albeit Vivendi could put its capital to better use than keeping an investment in Telecom Italia. Short savings/long ords.





Grifols SA (GRF SM)B shares are trading at a 35.0% discount (vs. 36.1% by mid-April and 39.7% by mid-February), there is a trend towards the tightening of this discount since March 2020 lows, albeit it is taking some time. There are some issues around Grifols leverage and some creative solutions to keeping it contained. The Covid-related antitakeover provisions issued by the Spanish Government mean that the voting rights are less valuable now. Also, the Spanish government plans to introduce double voting rights for "loyal" shareholders (those who have kept the shares for at least two years). Moreover, the by-laws contain a poison pill that should significantly reduce the discount in case of a takeover attempt. The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares (traded on Nasdaq), short A shares (traded in Madrid). The target is a 27% discount. Please note there is FX risk, which can be hedged.


The current discount in Atlas Copco AB (ATCOA SS) B shares vs. A shares is 15.2%  and seems to be on a widening trend.


On 10 May, Industrivärden divested its entire holding in SSAB AB (SSABA SS) . Top shareholder is now LKAB (Luossavaara-Kiirunavaara Aktiebolag), a government owned Swedish mining company. LKAB is now consolidating its influence in SSAB "in order to take responsibility and ensure that the company continues to have a clear industrial ownership influence at a time when the steel industry is facing major change". On 7 June, LKAB communicated its increased holding in SSAB (16.0% of the votes and 10.5% of the capital). The discount has tightened to 11.3%, lower than July, due to LKAB not increasing its stake. It seems the time to go long B shares/short A shares.






The discount in Volvo AB (VOLVB SS) B shares has slightly tightened since mid-June, from 3.0% to 2.7% (vs. 0.8% discount by mid-February). Still highest levels since January 2016.


The discount of non-voting Roche Holding AG (ROG SW) shares has widened to 7.9% (vs. 6.6% by mid-June, and it recently reached 8%), an unseen level since November 2011. The Hoffman family and related holds 45% of the voting rights (shareholder pooling agreement) whilst Novartis holds 33.3% of the voting rights. LTM average daily liquidity (in number of shares traded) for non-voting is 1,656k and 73k, for voting shares. So voting shares have blue-chip liquidity in their own right.


The discount in Schroders PLC (SDR LN) has widened to 28.4% (vs 25.7% by mid-June, 30.6% by mid-March and 34.1% by mid-February). I would maintain long non-voting/short voting shares on.




Please read on for table and charts.


Liquid Universe of European Ordinary and Preferred Shares: July Report

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An innovation focussed investment company

Granite Bay Capital is an innovation focussed investment company with a deep focus on the companies at the leading edge of innovation across major themes such as AI, ubiquitous computing, sustainability, automation and longevity.

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Headline Developments Apple (AAPL) and Goldman Sachs (GS) are reportedly partnering to launch a buy now, pay later (BNPL) service through Apple Pay, according to Bloomberg .  The service will reportedly allow users to spread payments of their purchases across four interest-free payments every two weeks, or across several months with interest.

Headline Developments Apple (AAPL) and Goldman Sachs (GS) are reportedly partnering to launch a buy now, pay later (BNPL) service through Apple Pay, according to Bloomberg .  The service will reportedly allow users to spread payments of their purchases across four interest-free payments every two weeks, or across several months with interest.

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Volkswagen AG manufactures and sells vehicles. The Company offers economy and luxury automobiles, sports cars, trucks, and commercial vehicles. Volkswagen serves customers worldwide.

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Headline Developments Apple (AAPL) and Goldman Sachs (GS) are reportedly partnering to launch a buy now, pay later (BNPL) service through Apple

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