What is the difference between buying Square and Afterpay (ASX:APT) shares?

Square or Afterpay: what’s the difference?

| More on:
woman thing about her payment

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It remains one of the biggest investing stories of the year in 2021 so far. Afterpay Ltd (ASX: APT), the homegrown buy now, pay later (BNPL) pioneer, is to be acquired in full by the US payments giant Square Inc (NYSE: SQ).

When this news first broke back in August, it caused quite a storm. Not only were investors excited that Afterpay, a company that had become the hottest of ASX growth shares over the past few years, would be getting bought out. But at a rough cost of $39 billion (when the deal was announced), this would be the largest acquisition in Australian corporate history.

Afterpay and Square shares: what’s the difference now?

This takeover deal is an all-scrip one. That means that it will be conducted through the issuance of new Square shares. No cash is likely to physically change hands. Under the deal, Afterpay shareholders are set to receive 0.375 shares of Square for every Afterpay share owned. So if this deal goes ahead (which looks likely seeing as Square and Afterpay’s management are both recommending so), Afterpay shareholders will become Square shareholders.

So that begs the question, what is the actual difference between buying Afterpay or Square shares today?

Well, to answer that, let’s first look at what this deal values an Afterpay share at. So Square closed at a share price of US$215.47 this morning (our time). Thus, if this transaction were to be completed right now, Afterpay shareholders would receive the equivalent of roughly $112.19 (worth 0.375 of a Square share) for every Afterpay share owned. That includes the impact of the current exchange rate.

At the time of writing, Afterpay shares are trading at a share price of $110.18. That’s up 2.7% for the day so far. You might notice a bit of a gap there. And that is the main difference between buying Afterpay shares and Square shares night now. Yes, it looks like it’s a better deal to just buy Square shares. You would get a better price for the same investment. That’s assuming the deal goes ahead without a hitch when it is scheduled to “in the first quarter of 2022”.

Buy now, get Square shares later?

But the market knows that ‘it ain’t over till it’s over’, and thus seems to be still assigning a small discount to Afterpay shares as a result.

If the deal does go ahead as planned, existing Afterpay shareholders will be able to receive the US-based Square stock that we’re talking about today. But Square has also said it will set up a CHESS Depository Interest (CDI) for Square on the ASX. That means that shareholders will be able to choose to get these Afterpay CDIs instead of the US-listed Square shares. This also means that all ASX investors will be able to buy Square shares on our own market.

So this all hinges on the Square acquisition of Afterpay going through. Once that happens, investors will only have Square to buy, and no Afterpay. Well, not quite – they will be one and the same. Now we just have to wait and see if that indeed comes to pass.

Motley Fool contributor Sebastian Bowen owns shares of Square. 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.

More on BNPL shares

A corporate executive in a suit and wearing boxing gloves slumps in the corner of the ring representing the battered Zip share price and consideration reportedly being given to dumping the company's UK operations
BNPL shares

Does this signify more bad news for ASX BNPL shares like Zip?

An ASX bank just wrote down its BNPL investment by 85%...

Read more »

A woman holds up hands to compare two things with question marks above her hands.
BNPL shares

‘The environment has changed’: Can Block shares maintain growth AND profitability into 2023?

The ASX 200 BNPL share is scaling back its planned investments over the coming quarters by US$250 million to focus…

Read more »

Happy man doing online shopping.
BNPL shares

Did Zip really outgrow former ASX favourite Afterpay in the June quarter?

Zip appears to be growing in markets where Afterpay has struggled.

Read more »

A young man wearing glasses and a denim shirt sits at his desk and raises his fists and screams with delight as he watches the ResApp share price go 50% higher today
BNPL shares

Why is the Block share price charging 10% higher on Thursday?

What's going on with the digital payments company's shares today?

Read more »

A woman sits on a chair smiling as she shops online.
BNPL shares

Zooming higher: The Zip share price is up 7%

The BNPL sector is lighting the ASX up.

Read more »

a smiling woman sits at her computer at home with a coffee alongside her, as if pleased with her investments.
BNPL shares

Why is the Sezzle share price surging 8% on Wednesday?

The Sezzle share price is on the burn today along with the wider BNPL sector.

Read more »

People sit in rollercoaster seats with expressions of fear, terror and exhilaration as it goes into a steep downward descent representing the Novonix share price in FY22
BNPL shares

Up 10%, what’s going on with the Zip share price today?

It's been a rollercoaster for this ASX BNPL share in recent days, and today is no different.

Read more »

A woman sits at her computer with her hands clutched her the bottom of her face as though she may be biting her fingermails with a worried expression in her eyes and frown lines visible.
BNPL shares

The Openpay share price has cratered 40% in 3 days. What’s going on?

Why has the Openpay share price fallen off a cliff this week?

Read more »