What does the Square acquisition mean for the Afterpay (ASX:APT) share price?

With Square potentially buying out Afterpay, what does this mean for shareholders?

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Over the past couple of years, the Afterpay Ltd (ASX: APT) share price has never been far from the headlines.

Dropping as low as $12.44 following the coronavirus-induced crash of 2020, Afterpay shares then rallied to a 52-high of $160.05 in February this year. The company’s shares have since been on somewhat of a rollercoaster as tech shares fall in and out of favour amid rising inflation fears.

Today, Afterpay shares are firmly in the spotlight again following an acquisition offer from US-listed financial services and digital payments giant Square Inc (NYSE: SQ). So what does this mean for the Afterpay share price?

What will happen to Afterpay?

Square plans to acquire Afterpay for approximately US$29 billion worth of stock.

This means Afterpay shareholders will receive a fixed exchange ratio of 0.375 shares in Square Class A common stock for each Afterpay share they hold on the record date.

Square notes that it may elect to pay 1% of total consideration in cash.

Based on Square’s last closing price of US$247.26, this values the Afterpay share price at approximately $126.21, a premium of approximately 30.6% to its last closing price of $96.66 on Friday.

If successful, Afterpay shareholders are expected to own approximately 18.5% of the combined company.

How will investors manage their Afterpay shares post-acquisition?

According to the announcement, Square will be looking to establish a secondary listing on the ASX via CHESS Depositary Interests (CDIs) to allow Afterpay shareholders to trade Square shares.

The acquisition will allow Afterpay shareholders to choose whether they want to receive the consideration in NYSE listed Square stock or the soon-to-be listed CDIs.

What’s next for the Afterpay share price?

According to today’s announcement, the transaction is expected to close in the first quarter of calendar year 2022.

Until then, there are a number of prerequisites that need to be satisfied.

Afterpay said it will apply for a ruling from the Australian Taxation Office regarding the “availability of scrip-for-scrip capital gains tax rollover relief in regards to the transaction for Afterpay shareholders in Australia.”

The company noted the transaction is intended to be “tax-free to Afterpay shareholders in Australia and receipt of confirmation of such ruling is a condition precedent to the transaction”.

The transaction will also require finalising regulatory approvals, shareholder approval and approval for quotation of shares on the New York Stock Exchange and ASX-listed CDIs.

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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO and Square. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson

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