Why the Afterpay (ASX:APT) share price is charging 4.5% higher

Afterpay’s shares are rising strongly today…

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The Afterpay Ltd (ASX: APT) share price has been among the best performers on the S&P/ASX 200 Index (ASX: XJO) on Thursday.

In early afternoon trade, the buy now pay later (BNPL) provider’s shares are up 4.5% to $131.88.

This compares favourably to the ASX 200’s gain of 1.1%.

Why is the Afterpay share price rising?

The catalyst for the rise in the Afterpay share price on Thursday has been a rise in the Square share price overnight.

As readers will be aware, at the start of August, US payments giant Square announced an agreement to acquire Afterpay.

However, rather than offer a fixed price, Square will be acquiring Afterpay in an all-scrip deal. This will see Afterpay shareholders receive 0.375 shares of Square Class A common stock for every share they own.

In light of this, until the completion of the transaction, the Afterpay share price and the Square share price will be intrinsically linked.

This means that if the Square share price rises 20%, so too should the Afterpay share price. And vice versa if it were to fall. The same also applies with foreign exchange rates, with the offer becoming more valuable if the Australian dollar weakens against the US dollar.

So what’s driving today’s gain?

The Afterpay share price was given a boost last night when the Square share price rose 4% following a strong trading session. This was particularly the case for tech shares, which outperformed.

This appears to have been driven by improving investor sentiment after positive news relating to Evergrande in China.

In addition to this, the recent highly successful IPO of fellow payments company competitor Toast appears to have given investor sentiment a boost in the sector.

Afterpay shareholders will no doubt be hoping for more gains by Square’s shares in the coming months ahead of the expected transaction completion in the first quarter of calendar year 2022.

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Motley Fool contributor James Mickleboro 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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