A company merger occurs when two firms come together to form a new company with one combined stock. Companies merge to expand their market share, diversify products, reduce risk and competition, and increase profits. Shareholders of the existing companies are provided with the shares of the merged company at a pre-defined ratio, known as Swap Ratio.
A Spin-Off refers to when a parent company sells a specific business unit or division, i.e. a subsidiary, to effectively create a new standalone company. As part of the spin-off, the parent company's existing shareholders are given shares in the new independent company.
The impact of mergers & spin-offs depends on the individual circumstance and on the swap ratio.
A swap ratio is the rate of exchange of shares of the companies that would undergo a merger. This is calculated by the valuation of various assets and liabilities of the merging companies.
The swap ratio determines the control that each group of shareholders of the companies shall have over the combined firm. It is an indicator of relative values of financial and strategic results of the company.