A stock swap is a method of transferring consideration in case of mergers and acquisitions. The acquiring company issues equity stock in its own company to the owners of the target company. The basic working is dependent on the exchange ratio called the swap ratio that is agreed by the owners of both the acquiring company and of the target company.
To obtain the control over Target Company the ownership of all or partial stock of Target Company is transferred to Acquiring company’s owners according to the value given by the swap ratio. The stock swap is workable with full stock swap or partial stock swaps depending on the consideration type agreed between the two companies.
