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I am actually having some difficulties understanding the overall concept of share for share exchange.
In the notes, “some shares in their own company” has been mentioned. What does this mean?
And also in the example(Viagem and Greca), it says, “we issued 6,000 of our own shares to acquire 9,000 shares in Greca”. What does this mean?When British Telecom wishes to acquire another company (Vodafone), but doesn’t have enough actual cash to do it, they can write to the shareholders of Vodafone and say “Will you transfer to us your shares in Vodafone and we shall issue to you some shares in our own company, British Telecom?”
And that explains the expression “some shares in their own company”
Instead of Viagem and Greca, let’s call them British Telecom and Vodafone respectively
So now we have:
“British Telecom issued 6,000 of British Telecom shares to acquire 9,000 shares in Vodafone”
That means that the previous holders of 9,000 Vodafone shares decided to accept British Telecom’s offer and transfer their 9,000 Vodafone shares to British Telecom and, in exchange, British Telecom issued to these former Vodafone shareholders 6,000 shares in British Telecom
So, for every 3 Vodafone shares that these former shareholders used to own, British Telecom issued 2 shares in their own company (British Telecom) and now British Telecom have control of Vodafone because they own 9,000 Vodafone shares
OK?
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