Abstract
Cash-settled equity swaps are an integral part of any portfolio manager’s toolkit. In their simplest form, an equity swap involves one party exchanging cash flows that mimic a fixed or floating interest rate for cash flows designed to replicate the income and capital return of a parcel of shares (Ali, 1999; Marshall and Yuyuenonwatana, 2000). Equity swaps can also be used to replicate the returns on a basket of different shares or an entire stock market. In this way, an investor is able to obtain economic exposure to the shares underlying the equity swap without having to purchase those shares. In addition, investors routinely make use of equity swaps to avoid transactional imposts (for example, stamp duty and capital gains tax on transfers of shares, and withholding taxes on dividends) and overcome legal impediments to dealings in shares (for example, limitations on the short-selling of shares, foreign ownership of shares, and cross-border remittances of dividends and sale proceeds).
This research was supported by a grant from the Australian Research Council (DP0557673).
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Ali, P. U. (1999) “Mimicking Shares: The Nature and Regulation of Equity Swaps”, Company and Securities Law Journal, 17: 436–52.
Falkner, R. (2005) “Contracts for Differences: The Case for Disclosure”, International Financial Law Review, October: 1–4.
Federal Court of Australia (2006) Glencore International AG y Takeovers Panel FCA 274, 22 March.
Hu, H. T. C. and Black, B. (2006) “Empty Voting and Hidden (Morphable) Ownership: Taxonomy, Implications and Reforms”, Business Lawyer, 61 (3): 1011–70.
International Swaps and Derivatives Association (ISDA) (2005) Letter to Panel on Takeovers and Mergers, 28 February.
International Swaps and Derivatives Association (ISDA) (2006) Letter to Panel on Takeovers and Mergers, 27 January.
Lumsden, A. and Laughland, I. (2005) “Derivatives in Takeovers: The New Battleground?”, Corrs Public Securities Group, Corrs Chambers Westgarth, Melbourne, 21 April.
Marshall, J. F. and Yuyuenonwatana, R. P. (2000) “Equity Swaps: Structures, Uses and Pricing”, in J. C. Francis, W. W. Toy and J. G. Whittaker, The Handbook of Equity Derivatives ( New York: John Wiley).
Panel on Takeovers and Mergers (2005a) Consultation Paper Issued by the Code Committee of the Panel: Dealings in Derivatives and Options — Outline Proposals Relating to Amendments Proposed to be Made to the Takeovers Code and the SARS, PCP 2005/1, 7 January.
Panel on Takeovers and Mergers (2005b) Consultation Paper Issued by the Code Committee of the Panel: Dealings in Derivatives and Options — Detailed Proposals Relating to Amendments Proposed to be Made to the Takeovers Code, Part 1: Disclosure Issues, PCP 2005/2, 13 May.
Price, C. and Mant, J. (2005) “The Panel Rules on Cash–Settled Swaps”, Focus: Mergers & Acquisitions, Aliens Arthur Robinson, Melbourne, August.
Takeovers Panel (2005a) In the Matter of Austral Coal Limited 02(R), ATP 16, 20 July.
Takeovers Panel (2005b) In the Matter of Austral Coal Limited 02(RR), ATP 20, 15 November.
Editor information
Editors and Affiliations
Copyright information
© 2007 Palgrave Macmillan, a division of Macmillan Publishers Limited
About this chapter
Cite this chapter
Ali, P.U. (2007). The Use of Equity Swaps in Mergers. In: Gregoriou, G.N., Neuhauser, K.L. (eds) Mergers and Acquisitions. Finance and Capital Markets Series. Palgrave Macmillan, London. https://doi.org/10.1057/9780230589681_12
Download citation
DOI: https://doi.org/10.1057/9780230589681_12
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-36362-9
Online ISBN: 978-0-230-58968-1
eBook Packages: Palgrave Economics & Finance CollectionEconomics and Finance (R0)