Afterpay Ltd (ASX: APT) shares are soaring on Monday after the buy now pay later (BNPL) provider agreed to be acquired by US payments giant Square Inc.
The Square-Afterpay deal
As mentioned here, the two parties have agreed an all-scrip deal. This deal will see Afterpay shareholders receive a fixed exchange ratio of 0.375 shares of Square Class A common stock for each Afterpay share they own on the record date.
Based on the latest Square share price of US$247.26, this implies a transaction price of approximately $126.21 per Afterpay share. This values the deal at approximately US$29 billion or A$39 billion.
What will happen to your Afterpay shares following the acquisition?
Given that Square's offer is all-scrip and not cash, shareholders may be wondering what will happen to their Afterpay shares if the acquisition completes successfully.
The good news is that Square is aiming to make the process as painless as possible. So much so, it plans to give shareholders two options post-completion.
The first option is for shareholders to receive the consideration in NYSE-listed Square stock. For investors that already invest directly in the United States, then this would be a possible option for them.
However, not everyone invests directly in the United States. So, for them, Square intends to establish a secondary listing on the Australian share market. This will allow Afterpay shareholders to trade Square shares via CHESS Depositary Interests (CDIs) on the ASX. This is the same way that Australian investors buy and sell ResMed CDI (ASX: RMD) shares at present.
What about tax?
The good news is that if all goes to plan, there will be no capital gains tax for shareholders to pay when Afterpay shares are converted into Square shares.
Afterpay advised that it will apply for a ruling from the Australian Taxation Office in relation to the availability of scrip-for-scrip capital gains tax rollover relief.
It notes that the stock transaction is intended to be tax-free for Afterpay shareholders in Australia. As such, the receipt of confirmation of such a ruling is a condition precedent to the transaction.
