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.

BREAKING DOWN '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.

  1. Employee Stock Option - ESO

    A stock option granted to specified employees of a company. ESOs ...
  2. Acquisition

    A corporate action in which a company buys most, if not all, ...
  3. Incentive Stock Option - ISO

    A type of employee stock option with a tax benefit, when you ...
  4. Cashless Exercise

    A transaction that is used when exercising employee stock options ...
  5. Holding Period

    The real or expected period of time during which an investment ...
  6. Merger

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