Here’s what you need to know about the Afterpay share price…
The post Why the Afterpay (ASX:APT) share price can still rise (and fall) after the Square deal appeared first on The Motley Fool Australia. –
The buy now pay later provider’s shares ended the day 19% higher at $114.80.
Where next for the Afterpay share price?
You might think that the potential gains (or declines) for Afterpay’s shares are over now that it has received a takeover approach, but that simply isn’t the case.
That’s because Square’s offer is an all-scrip offer, meaning investors will receive Square shares for their Afterpay shares.
This differs to the more common all-cash takeover offer where an acquisition price is set at a fixed level and doesn’t change.
As a result, between now and the expected closing of the deal (during the first quarter of calendar year 2022), the Afterpay share price and the Square share price will be intrinsically linked.
This means that if the Square share price rises, so too should the Afterpay share price. And vice versa if it were to decline.
A few scenarios
Square’s offer is 0.375 Square shares per Afterpay share.
Original offer: Square share price at US$247.26 = A$126.21 per share.
Square share price rises to US$300.00 = A$152.81 per share.
Square share price falls to US$200.00 = A$101.90 per share.
Positively for Afterpay shareholders, Wall Street reacted very positively to the news of Square’s acquisition of the buy now pay later giant.
This saw the Square share price jump 10% during overnight trade to US$272.38. Which, based on the takeover ratio and current exchange rates, means the implied takeover offer has already increased to A$138.78 per Afterpay share.
This compares to the current Afterpay share price of $114.80, which implies potential upside of almost 21%.
Though, it is worth remembering that the deal is subject to the satisfaction of certain closing conditions. This includes a shareholder vote and regulatory approval.
Should you invest $1,000 in Afterpay right now?
Before you consider Afterpay, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Afterpay wasn’t one of them.
The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
*Returns as of May 24th 2021
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. 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.