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I understand what happens to the shares of a company when the company is bought. What is not clear to me is if I own those shares through my account in a brokerage firm (e.g. Vanguard, Schwab, eTrade), how does the brokerage firm handle those shares ?

Especially for "All Cash Deal" or "Mixed Cash/Share Deal": does the brokerage firm automatically convert my shares (or part of them) to their cash value and transfer cash to my "cash account" with the brokerage firm ? Does the firm charge the transaction fees ?

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    I can't provide a definitive answer, so I'll keep it to a comment. When this has happened to companies I have owned, it worked more or less automatically. On the day the sale closed, the shares disappeared, I received a cash deposit at the published purchase price, and there was no commission or transaction fee charged. I have no idea if this is a legal requirement or simply standard practice. – Rick Goldstein Mar 15 at 21:33
  • I can say it worked out the same for me as @RickGoldstein -- just automatically converted to some number of shares of the acquiring company's stock, or converted to cash deposit in my account. In my case, no commision or fee. I'm fairly sure that the conversion to stock was not a taxable event (been years now), but getting cash may have been. – bobwki Mar 16 at 23:53
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When one company buys another, shareholders in the acquired company receive whatever the acquistion price is.

The stock of the company being bought ceases to exist and is replaced in your brokerage account with:

  • a certain number of shares in the company doing the buying. It may be a 1:1 exchange or a ratio, depending on the relative share prices of the two businesses.

  • the cash value of the acquired shares (usually when a company goes private)

  • a mix of stock in the new company and cash

A broker may or may not charge a custodial fee for administering corporate actions such as mergers.

  • If there is new stock at a ratio other than 1:1, and that ratio times your existing shares would result in a non-integer number of new shares, you (IME always, but there might be exceptions I don't know of) receive only the whole shares plus cash 'in lieu of' the fractional share, and even if the stock part is nontaxable this cash-for-fraction is a taxable disposition and must be reported on your tax return for the year, which is a nuisance. – dave_thompson_085 Mar 17 at 13:07
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    Yes, that would come under the category of receiving "a mix of stock in the new company and cash" – Bob Baerker Mar 17 at 13:44

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