Cash on the spot is a term used to identify specific types of exchanges that may take place in relation to stocks.
“Cash for exchange” is a term used to identify specific types of exchanges that may occur in connection with stocks. This particular strategy can be used as part of a process that involves the recognition of fractional shares during the course of a transaction, with some form of cash payment accompanying the allocation of full shares to each of the investors. This approach can be used in a variety of situations, including events such as company reorganizations, the purchase of one company by another, an amicable merger or acquisition, and even the happy event of a stock split.
With respect to a situation where one company is merged with or purchased by another, the cash-in-place approach can be used as a means of ensuring that investors who own shares in the acquired company receive a combination of shares from the new owner and possibly compensation for the exchange with a cash payment. This approach is typically used to compensate the investor for what is known as a fractional share or an asset that is not exactly the same as a full share. For example, if it is determined that, as a result of the purchase or merger, an individual investor is entitled to 200.5 shares of the new company, they will receive 200 shares of those new shares and will be compensated in cash for this 0.50 share in instead of retaining that half as part.
This cash-in-cash approach is also sometimes used with stock splits. If a given split results in investors owning fractional shares, the issuer may exercise the option to repurchase those shares or specific shares, paying investors cash. As in other situations, investors continue to hold whole shares for as long as they like.
Determining the amount of compensation that is considered equitable in a cash replacement situation involves evaluating the current market value of the shares involved. In most cases, the market value of the shares on the day these new shares are issued to the investor will serve as the value that will be used to calculate the value of the fractional shares. Once the calculation is complete, the investor is notified and payment is proposed in accordance with the payment provisions that are in force with the investor. Since the issuer is effectively using a cash replacement process to buy back those fractional shares from the investor, the investor continues to hold the full shares for as long as they wish, but the investor’s account no longer reflects the partial shares.