The terms all-stock deal and all-paper deal are often used in reference to mergers and acquisitions. In this type of acquisition, shareholders of the target company receive shares in the acquiring company as payment, rather than cash.
Example: An investor owns 10,000 shares in a beverage company’s stock. When the company is acquired by a large, universal company, the investor receives 10,000 shares of the universal company’s stock to compensate for their share of ownership in the acquired company.
All-stock deals may be used when shareholders of a target company prefer to obtain ownership in the acquiring company rather than receive a cash settlement. They may also be initiated by acquiring companies which want to buy out the investors of target companies but do not have sufficient cash assets. In this case, paying shareholders in stock is more affordable than paying investors in cash.
All-stock deals can be favorable for the shareholders of target companies if the merger is successful and results in an increase in the value of the acquiring company’s stock. However, because the value of shares can also decrease, all-stock deals involve more risk for target company shareholders than all-cash deals. Acquiring companies may also offer a combination of stock and cash to shareholders of target companies.
The value of the acquiring company shares offered to target company shareholders in an all-stock deal may be higher or lower than the value of their target company shares.
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