Definitions for "equity swap"
A swap for which payments on one or both sides are linked to the performance...
see also Interest Rate Swap) A contract in which counterparties agree to exchange payments related to indices, at least one of which (and possibly both of which) is an equity index.
An equity swap is used for corporate takeovers with the acquiring company exchanging shares with those of the acquired company. The system allows the acquiring company to make the acquired company a wholly owned subsidiary through a mandatory exchange of shares even if some shareholders oppose the deal. Such stock exchanges have long been part of corporate takeovers in the U.S. and other countries. Japan introduced the system in 1999 by revising the Commercial Code. A company must raise funds through bank loans or other means to buy another company unless it has enough funds on hand. But the acquiring company does not need to raise funds if it uses an equity swap. Even big corporate takeovers can be more flexible through such stock exchanges. The practice therefore supports corporate mergers and acquisitions worldwide.