The Afterpay Ltd (ASX: APT) share price was in sensational form on Monday after receiving and recommending a takeover offer from US payments giant Square.
The buy now pay later provider's shares ended the day 19% higher at $114.80.
Where next for the Afterpay share price?
You might think that the potential gains (or declines) for Afterpay's shares are over now that it has received a takeover approach, but that simply isn't the case.
That's because Square's offer is an all-scrip offer, meaning investors will receive Square shares for their Afterpay shares.
This differs to the more common all-cash takeover offer where an acquisition price is set at a fixed level and doesn't change.
As a result, between now and the expected closing of the deal (during the first quarter of calendar year 2022), the Afterpay share price and the Square share price will be intrinsically linked.
This means that if the Square share price rises, so too should the Afterpay share price. And vice versa if it were to decline.
A few scenarios
Square's offer is 0.375 Square shares per Afterpay share.
- Original offer: Square share price at US$247.26 = A$126.21 per share.
- Square share price rises to US$300.00 = A$152.81 per share.
- Square share price falls to US$200.00 = A$101.90 per share.
Positively for Afterpay shareholders, Wall Street reacted very positively to the news of Square's acquisition of the buy now pay later giant.
This saw the Square share price jump 10% during overnight trade to US$272.38. Which, based on the takeover ratio and current exchange rates, means the implied takeover offer has already increased to A$138.78 per Afterpay share.
This compares to the current Afterpay share price of $114.80, which implies potential upside of almost 21%.
Though, it is worth remembering that the deal is subject to the satisfaction of certain closing conditions. This includes a shareholder vote and regulatory approval.
