Stock-For-Stock

AAA

DEFINITION of 'Stock-For-Stock'

1. In the context of mergers and acquisitions, the exchange of an acquiring company's stock for the stock of the acquired company at a predetermined rate. Usually, only a portion of a merger is completed with a stock-for-stock transaction, with the rest of the expenses being covered with cash or other payment methods.

2. A method of satisfying the option price in an employee stock option compensation scheme. Under these compensation programs, employees are granted stock options but must pay the company the option price before they are given the grant. By exchanging mature stock (stock that has been held for a required holding period), the grantee can receive his/her options without having to pay for them. After a given time period, grantees are given back the stock they used to pay for their options.

INVESTOPEDIA EXPLAINS 'Stock-For-Stock'

1. For example, in order to satisfy the expenses of an acquisition, an acquiring company may use a combination of 2 for 3 stock-for-stock exchange with shareholders of the target company and a tender offer of cash.

2. Where possible, grantees often take advantage of a stock-for-stock exchange, as they usually increase a grantee's ownership position and require no cash outlay. Non-employee shareholders argue that stock-for-stock option price satisfaction adds to the already high expense of granting employees options, as the employees end up not having to pay the option price, which can add up to be a significant amount of cash if all employees granted options take advantage of stock-for-stock exercises.

RELATED TERMS
  1. Acquisition

    A corporate action in which a company buys most, if not all, ...
  2. Employee Stock Option - ESO

    A stock option granted to specified employees of a company. ESOs ...
  3. Cashless Exercise

    A transaction that is used when exercising employee stock options ...
  4. Tender Offer

    An offer to purchase some or all of shareholders' shares in a ...
  5. Target Firm

    A company which is the subject of a merger or acquisition attempt. ...
  6. Holding Period

    The real or expected period of time during which an investment ...
RELATED FAQS
  1. What is a stock-for-stock merger and how does this corporate action affect existing ...

    First, let's be clear about what we mean by a stock-for-stock merger. When a merger or acquisition is conducted, there are ... Read Full Answer >>
  2. What does the term "stock-for-stock" mean?

    The term "stock-for-stock" is popularly used in two different contexts, and it regularly makes business news headlines in ... Read Full Answer >>
  3. What does the underlying of a derivative refer to?

    A derivative security is a financial instrument in which the price of the derivative is dependent on its underlying asset. ... Read Full Answer >>
  4. What kinds of derivatives are types of contingent claims?

    A contingent claim is another term for a derivative with a payout that is dependent on the realization of some uncertain ... Read Full Answer >>
  5. What does it mean to take delivery of a derivative contract?

    When trading derivative contracts for options, a buyer or holder may have to take delivery of the underlying asset if the ... Read Full Answer >>
  6. How can derivatives be used for speculation?

    Derivative securities could be bought or sold to speculate on the future price of the underlying assets. Derivative securities' ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.
  2. Investing Basics

    The Merger - What To Do When Companies Converge

    Learn how to invest in companies before, during and after they join together.
  3. Options & Futures

    The "True" Cost Of Stock Options

    Perhaps the real cost of employee stock options is already accounted for in the expense of buyback programs.
  4. Options & Futures

    Should Employees Be Compensated With Stock Options?

    Learn the good, the bad and the ugly sides of this type of payout.
  5. Options & Futures

    The Controversy Over Option Expensing

    There has been much debate over whether companies should treat employee stocks options as an expense. This article examines both sides of the argument.
  6. Options & Futures

    The Basics Of Mergers And Acquisitions

    Learn what corporate restructuring is, why companies do it and why it sometimes doesn't work.
  7. Investing

    What More Volatility Means For Momentum Stocks

    One byproduct of the recent tick higher in bond yields: a meaningful rise in volatility for both stocks and bonds.
  8. Options & Futures

    How & Why Interest Rates Affect Options

    The Fed is expected to change interest rates soon. We explain how a change in interest rates impacts option valuations.
  9. Personal Finance

    Are You In The Top One Percent Of The World?

    If you live in an industrialized country, cracking the top one percent of income earners isn't as difficult as you might think.
  10. Charts & Patterns

    Are These the Top 3 Value Stocks of 2015?

    A look at three value plays for the long-term investor.

You May Also Like

Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  3. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  4. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  5. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  6. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
Trading Center