The stock-for-stock merger has become more common in the financial world in recent years. Here are the basics of a stock-for-stock merger deal and how it works.
This type of merger is one that allows two companies to come together by exchanging a certain amount of shares of stock. Each company will have an equal holding in the other company. By comparison, another common method of conducting a merger involved one company paying cash for shares of the other company. While this did accomplish the goal of merging, it was not quite as convenient as business owners would have liked.
This type of business merger is said to be much more efficient than using a cash transaction. When you keep everything in stock, you will not have to worry about the transaction costs of cashing out the stock. You can leave it in its existing form and just trade it with the other company.
Another benefit of this method is that it allows you to hang onto your cash as a company. If you did not trade stock shares, you have to either borrow money or use up your cash reserves. This could potentially put your company in a vulnerable position.