"Company A buys Company B for $10 billion." The sentence sounds complete, but it leaves out the question that often matters most to shareholders on both sides: how is that $10 billion being paid? The answer — cash, stock, or a blend — shapes the risk, the taxes and the ownership that follow.

The three ways to pay

Acquisitions are funded with one of three broad "currencies," as summarized in guides to mergers and acquisitions:

  • All cash. The buyer hands over money — from its own reserves or borrowed. The seller gets a clean, certain payout and no further stake in what happens next.
  • All stock. The buyer pays in its own shares, giving the seller's owners a piece of the combined company instead of cash, a structure known as stock-for-stock. Google's 2006 purchase of YouTube worked this way.
  • A mix. Many large deals blend the two — some cash, some shares — to balance the trade-offs below.

Why a buyer chooses one over the other

The choice is rarely arbitrary. A buyer leans toward cash when it has money to spare or can borrow cheaply, when it wants to avoid diluting existing shareholders (issuing new shares splits the company among more owners), and when it's confident enough to shoulder the risk alone. Cash deals are also simpler and send a message of conviction.

A buyer leans toward stock when it wants to preserve cash, when its own shares are richly valued (making them an attractive "currency"), or when it wants the seller to share the risk — and the upside — of the combined company. Paying in stock also keeps the target's founders and managers invested in making the merger work, since their payout now rides on the new company's performance.

What it means for the seller

For the company being bought, the currency determines the deal's real character:

  • Certainty vs. upside. Cash is money in hand — its value won't change. Stock ties the seller's fortunes to the buyer's share price: it can grow handsomely if the buyer thrives, or shrink if the buyer stumbles between signing and closing.
  • Taxes. This is a crucial, often-overlooked difference. A cash sale is generally a taxable event for the seller right away. An all-stock deal, if it meets tax rules, can let shareholders defer capital-gains tax until they eventually sell the new shares. (Specifics vary by jurisdiction and situation — this is general information, not tax advice.)
  • A continuing stake. Take stock and you're still an owner — exposed to the combined company's future, for better or worse.

Reading a deal like an analyst

When a deal is announced, a few questions tell you a lot:

  • What's the currency, and why? Cash can signal confidence; heavy use of stock can hint a buyer thinks its own shares are pricey.
  • Is the buyer taking on debt to fund cash, and how much?
  • How much dilution would a stock deal impose on the buyer's existing shareholders?
  • What happens to the price between signing and closing? In a stock deal, the headline value moves with the buyer's shares until the deal completes.

The bottom line: the price tag is the easy part. The currency behind it — cash, stock or a mix — quietly decides who carries the risk, who owes the tax, and whether the seller is cashing out or buying into a shared future. Boursel gives no investment advice; the next time a deal crosses the wire, read past the number to how it's actually being paid.