Square slides 5%. What does this mean for the Afterpay (ASX:APT) share price?

Things aren’t looking good for Afterpay on Wednesday.

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The Afterpay Ltd (ASX: APT) share price is sliding in Wednesday’s premarket, indicating further losses in September with just three days left of the month.

Afterpay shares have closely tracked the performance of Square Inc (NASDAQ: SQ) after the US payments company came forth with a $39 billion takeover offer.

The US market tumbled on Tuesday night as rising bond yields pushed investors out of popular tech shares. The Nasdaq Composite logged steep losses, down 2.83% to a 1-month low.

Square falters overnight

The Square share price couldn’t escape the rout in the technology sector, sliding 5.97% to a 2-month low of US$242.70.

When Square made its offer to acquire Afterpay on 2 August, its shares jumped 10.16% from US$242.84 to US$272.38 on the day.

Square is now trading at its lowest levels since its takeover offer.

In addition, the largest US-listed BNPL player, Affirm Holdings Inc (NASDAQ: AFRM) fell sharply, down 10.79% to US$144.52.

The heavy-tech based selling across US tech and payments peers paints a grim picture for how the ASX tech sector might perform on Wednesday.

What does this mean for the Afterpay share price?

Under the terms of Square’s takeover, Afterpay shareholders will receive a fixed exchange ratio of 0.375 Square shares for each Afterpay share they hold on the record date.

After last night’s selloff, the fixed exchange ratio of 0.375 represents around US$91.01 worth of Square stock.

Converting this figure back into Australian dollars at the current exchange rate would, theoretically, value the Afterpay share price at $125.99.

It’s worth mentioning that the Afterpay share price has typically traded at a discount to the theoretical value.

For example, the Square share price hit all-time highs of US$289.23 on 5 August. This implies a theoretical value of $149.70 for Afterpay.

However, the Afterpay share price has only rallied as high as $135.70 since the takeover offer.

Should you invest $1,000 in Afterpay right now?

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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, Affirm Holdings, Inc., 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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