Stock Swap

AAA

DEFINITION of 'Stock Swap'

The exchange of one asset for another. A stock swap occurs when shareholders' ownership of the target company's shares are exchanged for shares of the acquiring company as part of a merger or acquisition. During a stock swap, each company's shares must be accurately valued in order to determine a fair swap ratio.


A stock swap can also occur when a stock option is exercised and the original shareholder exchanges their existing number of shares to receive a new greater amount.

INVESTOPEDIA EXPLAINS 'Stock Swap'

For example, in 2010, utility companies Mirant and RRI Energy merged to form GenOn Energy. Each Mirant shareholder received 2.885 shares of RRI Energy in the stock swap. This means that for every share of Mirant owned, the investor would receive 2.885 share of RRI energy.


Starbucks has also done a stock swap for its employees. Employees were give an opportunity to buy stock options in the company at a discounted price. These options had a exercise price well below the market price, and therefore had a high value. Two years later, the share price of Starbucks dropped below the exercise price, which made these stock option worthless. Starbucks offered its employees the opportunity to swap the stock options by taking the now worthless stock option from them and exchanging them for new stock options which possessed a higher value.

RELATED TERMS
  1. Swap Execution Facility - SEF

    A trading system or platform that enables many participants to ...
  2. Amortizing Swap

    An exchange of cash flows, one of which pays a fixed rate of ...
  3. Replacement Swap

    A substitute for a swap arrangement that is terminated before ...
  4. Reverse Swap

    An exchange of cash flow streams that undoes the effects of an ...
  5. Total Return Swap

    A swap agreement in which one party makes payments based on a ...
  6. Swap

    Traditionally, the exchange of one security for another to change ...
Related Articles
  1. An Introduction To Swaps
    Options & Futures

    An Introduction To Swaps

  2. The Advantages Of Bond Swapping
    Bonds & Fixed Income

    The Advantages Of Bond Swapping

  3. The Evolution Of ETFs
    Mutual Funds & ETFs

    The Evolution Of ETFs

  4. What is a debt/equity swap?
    Investing

    What is a debt/equity swap?

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center