What risk do shareholders face in a fixed exchange ratio structure?

In a fixed exchange ratio structure, shareholders face the risk of potentially losing out on upside gains if share prices decline. This is because in such arrangements, the number of shares exchanged is predetermined, regardless of the market performance of the respective companies involved. If one company's stock performs poorly at the time of the exchange, shareholders may end up with shares that have a lower market value compared to what they would have received under a variable exchange ratio, which would adjust based on the stock performance.

This fixed nature means that if the market turns unfavorable and the value of the shares drops, shareholders cannot take advantage of a more favorable exchange based on fluctuating market conditions, thus cementing potential losses. Shareholders are left with the risk that, although they hold the same number of shares post-exchange, the actual value of those shares has been impacted negatively due to market dynamics, limiting their ability to capitalize on any recovery in stock prices.