The Afterpay Ltd (ASX: APT) share price has continued to rise after receiving a takeover bid from fintech giant Square Inc (NASDAQ: SQ).
Why does the Afterpay share price keep rising?
Earlier this week, Square offered to buy Afterpay in an all-stock deal.
Afterpay shareholders will receive a fixed exchange ratio of 0.375 shares of Square shares for each Afterpay share. The shareholders of Afterpay will own close to a fifth of Square if the deal goes ahead.
Based on Square’s closing price of US$247.26, the deal represented an implied price of $126.21. That was a premium of approximately 30.6% to Afterpay’s last share price at the time of $96.66.
But the Square share price has actually increased by around 14% since the offer. So that means that Afterpay shareholders will also get more value from the deal and hence why the Afterpay share price is still rising.
Square has agreed to establish a secondary listing on the ASX to allow Afterpay shareholders to trade Square shares through a CHESS depositary interest (CDI). So if and when the deal goes ahead, Afterpay shareholders can still benefit from the business, but as Square shareholders.
What’s in it for Square?
Both businesses are expected to be improved by combining the two ecosystems.
Square said it will bring value, differentiation and scale to Afterpay. It will expand Afterpay’s reach with Square’s large and growing customer base of more than 70 million annual transacting active cash app customers and millions of sellers.
Square believes Afterpay will add to gross profit growth with a modest decrease of adjusted EBITDA (EBITDA explained) margins in the first year after completion.
However, Square sees an opportunity to invest behind Afterpay’s “strong” unit economics as well as attractive growth synergies.
Will the Afterpay share price keep rising?
It’s certainly possible if the Square share price keeps rising. But it’s also possible that the Afterpay share price could drop if the Square share price falls from here.
