During a merger, two companies will purchase each others shares, in agreed proportions.
For example, company A will purchase company B's shares. Company B will then purchase company A's shares. The shares of the original companies will then be taken off the market and replaced by a new share, the value of which represents the combined value of company A and company B together.
The value of the final share is not usually the combination of the original share price, and the calculation of the new price is a complex calculation, which includes factors such as savings made due to economies of scale, reduced competition and goodwill.
