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.