Exchange Ratio

AAA

DEFINITION of 'Exchange Ratio'

The relative number of new shares that will be given to existing shareholders of a company that has been acquired or merged with another. After their old company shares have been delivered, the exchange ratio is used to give shareholders the same relative value in new shares of the merged entity.

INVESTOPEDIA EXPLAINS 'Exchange Ratio'

An exchange ratio is designed to give shareholders an asset with the same relative value of the asset they delivered upon the acquisition of the acquired company. Relative value does not mean, however, that the shareholder receives the same number of shares or same dollar value based on current prices. Instead, the intrinsic value of the shares and the underlying value of the company will also be considered when coming up with an exchange ratio.

RELATED TERMS
  1. Acquisition

    A corporate action in which a company buys most, if not all, ...
  2. Merger

    The combining of two or more companies, generally by offering ...
  3. Target Firm

    A company which is the subject of a merger or acquisition attempt. ...
  4. Sweetheart Deal

    A merger, a sale or an agreement in which one party in the deal ...
  5. Hostile Takeover

    The acquisition of one company (called the target company) by ...
  6. Intrinsic Value

    1. The actual value of a company or an asset based on an underlying ...
Related Articles
  1. Stock Analysis

    Breaking Down the Halliburton Baker Hughes Deal

    Halliburton is using a downturn to get bigger and stronger in the long term, and the company is getting Baker Hughes at a reasonable price as a result.
  2. Brokers

    Key Differences Between M&A Advisors And Business Brokers

    For a buy, sale or partnership for one's business, one needs brokers and advisors to proceed ahead. Here are the key differences between business brokers and M&A advisors.
  3. Trading Strategies

    Selecting Mergers & Acquisitions Advisories For Small Businesses

    Mergers and acquisitions advisories aren't just for big players. Many advisory firms cater to small and medium businesses.
  4. Investing

    M&A Advisory Business Boutiques: How The Small Shops Are Capturing Large M&A Deals

    M&A advisory boutiques are becoming a big business, giving large investment banks a run for their money.
  5. Investing

    The Top Reasons Why M&A Deals Fail

    A significant number of M&A transactions result in failure. Here are the top reasons, with examples, of why it happens.
  6. Investing Basics

    What Merger And Acquisition Firms Do

    The merger or acquisition process can be intimidating. This is why merger and acquisition firms step in to facilitate the process.
  7. Investing Basics

    Analysis of Companies with high goodwill

    High goodwill as a percentage of market cap can actually be a big red flag--it potentially means the company botched a major acquisition.
  8. Investing Basics

    How Mergers and Acquisitions Can Affect A Company

    M&A can have a profound effect on a company’s growth prospects and outlook, but with a significant degree of risk.
  9. Investing Basics

    The Biggest Mergers & Acquisitions In The U.S.

    M&A is a daily part of the American business world. They're based on the principle that "One plus one equals three," i.e. they become greater than the sum of their parts.
  10. Investing Basics

    How To Profit From Mergers And Acquisitions Through Arbitrage

    Making a windfall from a stock that attracts a takeover bid is an alluring proposition. But be warned – benefiting from m&a is easier said than done.

You May Also Like

Hot Definitions
  1. Trust Fund

    A trust fund is a fund comprised of a variety of assets intended to provide benefits to an individual or organization. The ...
  2. Christmas Tree

    An options trading strategy that is generally achieved by purchasing one call option and selling two other call options at ...
  3. Christmas Club

    A short-term savings account that usually pays out the full account balance to its account holders once each year, right ...
  4. Boston Snow Indicator

    A market theory that states that a white Christmas in Boston will result in rising stock prices for the following year. For ...
  5. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  6. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
Trading Center