What is a fixed exchange ratio in an equity transaction?

A fixed exchange ratio in an equity transaction refers to the scenario where a predetermined, constant number of shares is exchanged for each share of the target company. This means that regardless of fluctuations in the market price of the acquirer's shares, the target company's shareholders will receive the same number of shares per share they hold.

This mechanism provides clarity and predictability to the transaction, ensuring that shareholders of the target company know exactly how many shares they will receive at the time of the deal's announcement, without concerns about market volatility affecting their compensation. As a result, it minimizes the risk associated with changes in stock prices that could potentially disadvantage the target company's shareholders after the deal is finalized.

In contrast, the other options describe scenarios that do not meet the criteria of a fixed exchange ratio, which is defined by its constancy and lack of variability based on market conditions or other factors.