exchange offer investment & finance definition
A
situation in which a company, typically one that is bankrupt or nearly
bankrupt, asks bondholders to exchange their bonds for new ones that typically
pay higher interest rates but have lower face values. Often the maturity of the
bonds is lengthened in the exchange offer in order to give the troubled company
more time to fix its problems.
See exchange offer in Wall Street Words
An offer by a firm to exchange its own securities for those of another firm or for a different series of the same firm's securities. For example, a firm may offer a new bond issue in exchange for an older series currently outstanding. Depending on the type of securities included in the offer, the security holder may be taxed for the exchange.
Case Study In April 2001 AT&T offered its stockholders shares in AT&T Wireless Group in exchange for shares of AT&T Corp. The exchange offer was intended to split off AT&T Wireless from the parent company as part of the firm's planned restructuring into three separate and independent corporations. At the time of the offer, AT&T owned approximately 70% of AT&T Wireless that traded on the New York Stock Exchange as a tracking stock. Japan's Nippon Telegraph & Telephone had earlier paid nearly $10 billion for 16% of AT&T Wireless. According to terms of the exchange offer, AT&T would issue 1.176 shares of AT&T Wireless Group for each share of AT&T stock. The exchange ratio represented a 6.5% premium compared to AT&T's common stock, which was then trading for $22 per share. AT&T announced it would accept up to 427.7 million shares of its common stock in the exchange, which would be conducted on a pro rata basis in the event AT&T stockholders tendered more than 427.7 million shares.
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