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Differences between an all-cash and all-stock transaction

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What are the differences (stock, risk, economic, etc.) between an all-cash and all-stock transaction? What are the pros and cons of each?

Can you cite an example of either an all-stock or all-cash merger/acquisition?

How about more complex transactions -- can we think of examples?

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Solution Summary

The differences between an all-cash and all-stock transaction is examined.

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The differences between an all-cash and all-stock transaction, their pros and cons to the acquirer and the seller:

An all-cash transaction is one in which a the price for acquiring a business is paid in cash where as an all-stock transaction the entire amount of the acquiring a business is paid in terms of the shares of the company that is acquiring the business. These two types of transactions are different in a number of ways:

In all cash transactions, often shareholders acquiring a particular business takes on the entire risks associated with expected synergy value of the acquisition not occurring. Given this high risk that an acquirer is faced with, and the possibility they face difficulty getting sufficient cash for acquisitions, most likely the acquirer would be able to buy the business at a lower price. This is unlike the all stock transactions where the shareholders acquiring the business share both the risks and value of the transactions with the shareholders of the company that is being acquired in proporti0on to the percentage of the combined company and the proportions that both the acquired shareholders and the acquiring shareholders will own. In this transaction unlike an all cash transaction, sellers can be able to achieve ...

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