Share Exchange Agreement

A share exchange is a type of business transaction governed by statutory law in which all or part of one corporation's shares are exchanged for those of another corporation, but both companies remain in existence.

Exchange Ratio example Firm A is currently trading at $11.75 per share. To calculate the exchange ratio, we take the offer price of $21.63 and divide it by Firm A's share price of $11.75. The result is 1.84. This means Firm A has to issue 1.84 of its own shares for every 1 share of the Target it plans to acquire.

Another legal technique is a share exchange, sometimes called a swap fund. Stockholders can diversify their portfolios without paying any capital gains tax.He can exchange his $5 million worth of stock for an equivalent value of shares in the newly created fund.

The commonly used bases for establishing the exchange ratio are: earnings per share, market price per share, and book value per share. Earnings per share: Suppose the earnings per share of the acquiring firm are Rs 5.00 and the earnings per share of the target firm Rs 2.00.

Introduction. A share swap arrangement signifies issuance of a share in exchange for a share rather than remittance of cash consideration. Share Swap arrangements occur when shareholders' ownership of the target company's shares is exchanged for shares of the acquiring company as part of any restructuring.

A fixed exchange ratio: the ratio is fixed until closing date. This is used in a majority of U.S. transactions with deal values over $100 million. A floating exchange ratio: The ratio floats such that the target receives a fixed value no matter what happens to either acquirer or target shares.

A written agreement between the exchanger and the Qualified Intermediary defining the transfer of the relinquished property, the ensuing purchase of the replacement property, and the restrictions on the exchange proceeds during the exchange period.

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.

Advantages. The Biggest advantage of the share swap is that it limits the cash transactions. Even the cash-rich companies find it challenging to set aside a large pile of cash to carry out the transactions for mergers and acquisitions.