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  1. Bankruptcy Glossary
  2. Exchange Offer

What is an Exchange Offer?

An exchange offer, which also may refer to a type of tender offer, is a corporate finance term which refers to the public offering or invitation to stockholders or bondholders to trade their stocks and bonds for other stocks and bonds instead of cash. A tender offer can be made if a company or another person is trying to get enough shares in a particular company to control the company. This can be done by directly contacting shareholders and offering to tender their stock for a certain price for a specific duration of time but only if a certain number of stockholders agree to the purchase. A tender offer can be made as an exchange offer and stockholders may be asked to trade their shares for shares in a different company rather than receive cash payment.

Exchange offers may also be done with bond exchanges where people may submit old bonds for new ones which offer an advantage to the bondholder. This is frequently done with companies who are attempting to avoid Bankruptcy by extending the maturity date on their bonds and increase available funds. Tax considerations should be evaluated with all exchange offers. Higher valued shares may increase the income of the stockholder. Talk to a tax accountant about the implications for taxes and the type of tax documentation which should be maintained to avoid problems with the IRS.