The Afterpay-Square takeover deal is worth $9bn less now

The Afterpay-Square transaction is worth a lot less now than in August…

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It has been another disappointing day of trade for the Afterpay Ltd (ASX: APT) share price.

In afternoon trade, the payments company’s shares are down over 4% to $96.05.

Why is the Afterpay share price falling today?

Investors have been selling down the Afterpay share price today after another pullback in the Square share price overnight.

On Thursday night, Square saw its shares fall 4% during regular trade and then a further 0.5% in after hours trade to US$186.00.

As Square is in the process of acquiring Afterpay in an all-scrip deal, the value of the takeover rises and falls with the Square share price.

What does this mean for the takeover deal?

In light of the above and with Afterpay shareholders voting on the takeover next week, I thought I would look to see what these latest declines mean for the proposed transaction.

In August, the two parties agreed an all-scrip deal which will see Afterpay shareholders receive a fixed exchange ratio of 0.375 shares of Square Class A common stock for each Afterpay share they hold.

At the time, the Square share price was trading at US$247.26, which implied a transaction price of approximately $126.21 per Afterpay share. This valued the deal at approximately US$29 billion or A$39 billion.

However, while this offer was an attractive 30.6% premium to the Afterpay share price at the time ($96.66), the weakness in the Square share price has since wiped out almost all of this premium.

So much so, the offer now represents a takeover price of just ~$97.50, which is less than one percent higher than where Afterpay’s shares were trading prior to the offer. It also values the transaction at approximately A$30 billion, wiping ~A$9 billion off the deal.

And perhaps adding further displeasure to shareholders is that fact that this implied transaction price is 39% lower than Afterpay’s 52-week high of $160.05.

This sets the scene for a very interesting vote at next week’s extraordinary general meeting.

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 and has recommended AFTERPAY T FPO. The Motley Fool Australia owns 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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