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LSDefine
Simple English definitions for legal terms
exchange ratio
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A quick definition of exchange ratio:
Exchange Ratio: The exchange ratio is the number of shares that a company buying another company must give for each share of the company being acquired. For example, if the exchange ratio is 2:1, it means that the acquiring company must give two of its shares for every one share of the acquired company. This helps determine the value of the acquisition and how much ownership the shareholders of the acquired company will have in the new combined company.
A more thorough explanation:
The exchange ratio is the number of shares that an acquiring company must give for each share of an acquired company. It is a key factor in determining the value of a merger or acquisition.
If Company A wants to acquire Company B and the exchange ratio is 1:2, it means that for every one share of Company A, Company B shareholders will receive two shares of Company A.
Another example could be if Company C wants to acquire Company D and the exchange ratio is 1:1, it means that for every one share of Company C, Company D shareholders will receive one share of Company C.
These examples illustrate how the exchange ratio determines the number of shares that will be exchanged between the acquiring and acquired companies in a merger or acquisition.