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What's the exchange ratio formula for a 100% stock deal? If the buyer trades at $50 and the offer price is $70 per target share, what's the exchange ratio?
Answer
Exchange ratio = (Offer Price / Buyer Share Price) × % Stock Consideration. For this case: $70 / $50 × 100% = 1.4 buyer shares per target share.
Why interviewers ask this
Exchange ratio determines how many new buyer shares get issued. In fixed-ratio deals, the ratio stays constant and target shareholders bear market risk on the buyer's stock between announcement and close. In floating-ratio deals, the ratio adjusts to deliver a fixed dollar value.
exchange ratiostock deal