The problem is that the stockholders of the acquired company also have to share the risks. Let's suppose that Company A completes the purchase of Company B with an exchange of shares and then none of the expected synergies materialize. However, in reality the acquirer is so much larger than the seller that the seller ends up owning a negligible share of the new combined company. There is more to simply choosing between cash or stock when making or accepting offer. There are two ways to structure an offer for an exchange of shares and the choice of one approach or the other has a significant impact on the allocation of risk between the two sets of shareholders.
Companies can either issue a fixed number of shares or they can issue a fixed value of shares.
In a fixed-share offer the number of shares to be issued is certain, but the value of the deal may fluctuate between the announcement of the offer and the closing date, depending on the acquirer's share price. Both the acquiring and the selling shareholders are affected by these changes, but changes in the acquirer's price will not affect the proportional ownership of the two sets of shareholders in the combined company. Therefore, the interests of the two sets of shareholders in the deal's shareholder value added do not change, even though the actual SVA may turn out to be different than expected. In a fixed-share deal, shareholders in the acquired company are particularly vulnerable to a fall in the price of the acquiring company's stock because they have to bear a portion of the price risk from the time the deal is announced. In a fixed-value deal, the acquirer issues a fixed value of shares.