Exchange Ratio

An exchange ratio states how many shares of one company a holder receives for each share of another company in a stock-for-stock merger, reverse merger, or similar transaction. For example, an exchange ratio of 0.10 means that 100 old shares convert into 10 shares of the post-transaction company. The ratio is important because a higher trading price for the new shares does not necessarily mean that the investor’s position increased in value; the number of shares received under the exchange ratio must also be considered.

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