Definition of Exchange ratio:
An exchange ratio is designed to give shareholders the amount of stock in an acquirer company that maintains the same relative value of the stock the shareholder held in the target, or acquired company. The target company share price is typically increased by the amount of a "takeover premium," or an additional amount of money an acquirer pays for the right to buy 100% of the company's outstanding shares and have a 100% controlling interest in the company.
The determining of how many stock shares should be offered to stockholders by the acquiring company when one company purchases another.
The exchange ratio is the relative number of new shares that will be given to existing shareholders of a company that has been acquired or that has merged with another. After the 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.
How to use Exchange ratio in a sentence?
- The exchange ratio calculates how many shares an acquiring company needs to issue for each share an investor owns in a target company to provide the same relative value to the investor.
- The intrinsic value of the shares and the underlying value of the company are considered when coming up with an exchange ratio.
- There are two types of exchange ratios: a fixed exchange ratio and a floating exchange ratio.
- The target company purchase price often includes a price premium paid by the acquirer due to buying 100% control of the target company.
Meaning of Exchange ratio & Exchange ratio Definition