Share swap mergers: how all-stock deals are priced in India

In an all-stock merger, no money changes hands between the companies. One company, the surviving or acquiring one, issues its own shares to the owners of the other, and the other company is folded in. Owners of both end up holding parts of a bigger firm.

This suits young companies with little cash. A recent live case is Mygate's plan to merge with Adonmo in an all-stock deal, according to StopDown's story, which describes the combined business as having revenue of about ₹500 crore a year.

Listed companies can also merge by share swap, but they face extra steps from SEBI and the stock exchanges, including disclosure of the ratio and the valuer reports to the public.

The swap ratio comes from comparing what each company is worth. Valuers look at several methods: discounted cash flow, comparison with listed peers, comparison with recent deals, and the value of assets. They weigh the results and arrive at a value for each company, and then at a value per share.

The ratio is simple arithmetic once those values are fixed. If Company A is worth ₹1,000 crore with 10 crore shares, each share is worth ₹100. If Company B is worth ₹500 crore with 5 crore shares, each of its shares is worth ₹100 too, so the ratio is 1 to 1. If B's value is ₹300 crore, each B share is worth ₹60, and a B holder gets 0.6 of an A share. The fight in every deal is over those valuations, because the higher a company is valued, the more of the merged firm its holders own.

Different methods can give very different answers, and the two sides often argue over which to weight most. A company with fast-growing revenue may favour a method that looks at future earnings, while a company with steady assets may favour one that looks at what it owns today.

Under the Companies Act 2013, a valuation of this kind has to come from a registered valuer, as of November 2026. A registered valuer is a professional enrolled under section 247 and the valuation rules made under it. In a scheme of arrangement the boards also usually obtain a fairness opinion from a merchant banker. For listed companies SEBI's rules add pricing and disclosure requirements.

Valuations still involve judgment, and minority shareholders sometimes challenge a ratio they think is unfair. The tribunal can then order another valuation.

A merger is normally done through a scheme of arrangement under sections 230 to 232 of the Companies Act 2013, approved by the National Company Law Tribunal (NCLT). The usual route needs the board of each company, a vote of shareholders and creditors at meetings the tribunal orders, and then the tribunal's sanction. The vote needs approval by holders of at least 75% in value of those present and voting. Regulators such as the Registrar of Companies and the Regional Director are given notice and may comment.

Smaller companies and some group mergers can use a faster route under section 233, covered in the guide on fast-track mergers. Deals with foreign shareholders also have to follow foreign exchange rules, notably the FEMA Non-Debt Instruments Rules 2019. Competition approval is needed if size thresholds are met.

Ownership after a swap follows from the ratio and the number of shares issued. The surviving company issues new shares to the other company's holders, so its existing holders are diluted. Whether this is fair depends on the valuations, which is why both boards, the valuer and the tribunal look at them.

Founders and investors in the smaller company may receive shares in a company whose own shares are unlisted and hard to sell. That makes the value of the new shares a matter of faith until the merged company lists or raises a priced round. It also explains why some deals pair a swap with a clause that gives holders a way to sell later, or with a plan for an IPO of the merged company.

An amalgamation that meets the tests in the Income-tax law is tax neutral. In the older Income-tax Act 1961 numbering, two tests in section 2(1B) are commonly described: all the assets and liabilities of the merging company must pass to the new one, and at least 75% in value of its shareholders must become shareholders of the surviving company. When they are met, the transfer of shares is not treated as a taxable transfer for the company or its shareholders, as set out in section 47. The Income-tax Act 2025 renumbers the sections, so check the current text.

Shareholders usually keep their original cost and holding period for the new shares. Tax outcomes depend on details, and a tax adviser should confirm them.

Cash is scarce, especially for startups. A swap lets two companies combine without raising money or selling assets, and gives owners a share in the combined upside. It also keeps founders and early investors involved in the outcome. The risks are dilution, since each side owns a smaller portion of a larger firm, and the difficulty of agreeing on valuations.

In a cash deal, the seller exits and takes money. In a swap, the seller stays as an owner of the combined business and takes the risk that it does well or badly. A swap shares risk and reward, a cash deal moves them to the buyer.

Swaps also change control. If the two sides are of similar value, neither founder team clearly leads, and the merger agreement must say who runs the business, who sits on the board and who holds the vetoes. The guides on how acquisitions are paid and on mergers and acquisitions cover the other payment methods.

Look for the combined valuation and who owns what afterwards, and note whether a figure is a company's own estimate or a valuer's. A merger announcement is not a closed deal: the NCLT process can take many months. In the Mygate story, the merged business was valued at about ₹3,500 crore, against ₹2,000 to ₹2,200 crore at Mygate's June round, and the outcome depends on approvals. This page is general information, and a lawyer and tax adviser should be consulted.