What is an All Cash, All Stock Offer
An all cash, all stock offer is a proposal by one company to purchase all of another company's outstanding shares from its shareholders for cash. An all cash, all stock offer is one method by which an acquisition can be completed. In this type of offer, one way for the acquiring company to sweeten the deal and try to get uncertain shareholders to agree to a sale is to offer a premium over the price for which the shares are presently trading.
BREAKING DOWN All Cash, All Stock Offer
The downside of an all cash, all stock offer for shareholders is that their sale of shares is a taxable event. Even if they sell their shares to the acquirer at a premium, taxes may take a significant chunk of their earnings if the sale price is higher than the price investors paid when they initially purchased their shares. However, all shares of stock that are made at a price higher than the stock's cost basis constitutes a taxable event, so this particular sale is not that different from a tax standpoint from a normal sale on the secondary market.
In addition, if the future of the company is in question or if the stock price has been struggling, the opportunity to sell shares for a premium might be a good opportunity to get out of the investment. Another possible acquisition method would be for the acquiring company to offer shareholders an exchange of all the shares they hold in the target company for shares in the acquiring company. These stock-for-stock transactions are not taxable. The acquiring firm could also offer a combination of cash and shares.