Exchange Ratio

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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.

BREAKING DOWN '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.

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