Exchangeable Security

Exchangeable security – An exchangeable security is a security whereby the owner has a right to exchange it for common stocks in a different company.  Exchangeable securities are often used in corporate takeovers such as mergers and acquisitions. The exchangeable security could be bonds or preferred stock in one company for common shares in another company.  Some issuers prefer to relinquish the exchangeable security option so that their investors who will benefit from not having to pay taxes immediately on the exchange and also to avoid any transaction cost for the exchange. The security holder may or may not be taxed for the exchange depending upon the securities, which have been exchanged. For an example of an exchange in 2001 AT&T exchanged shares of AT&T Wireless Group from its shareholders in exchange for AT&T Corp shares.