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Stock swap
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==Overview== The acquiring company essentially uses its own stock as cash to purchase the business. Each [[shareholder]] of the acquired company will receive a predetermined number of shares from the acquiring company. Before the swap occurs each party must accurately value their company so that a fair "[[swap ratio]]" can be calculated. The [[Business valuation|valuation of a company]] is complicated in general; here though, additional to [[fair market value]], the [[Stock valuation|investment-]] and [[Intrinsic_value_(finance)#Equity|intrinsic value]] are to be determined as well. After the valuation is complete, the parties will agree upon the swap ratio; this will determine the number of shares that each shareholder will receive. In theory, a fair ratio is such that shareholders in both previous companies now own a pro-rated share of the new company: value-wise or re [[earnings per share]]. The acquiring company may also need to add an extra incentive in the form of shares to ensure that the [[board of directors]] of the acquired company approve the takeover. In [[South Korea]], the merger ratio is defined by a certain formula according to the law, if both companies are listed on the [[Korea Exchange|KRX]]. When this swap is realised, the shareholders receive the new stock and own a share in the new company. Sometimes, a part of the agreement will not allow the new shareholders to sell for a certain time period to avoid a sudden drop in share price. This is a form of a [[shareholder rights plan]] or [[Shareholder rights plan|poison pill]] strategy that is used to combat [[hostile takeover]]s. When all things come together and are fair, then the takeover will proceed without incident.
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