If you own shares in a company, and the company is bought out or merges with another company, what happens to your shares? Well, several things could happen. If the firm is bought out for cash, you might receive a check for your shares. If it's bought with stock or there's a merger involving a stock swap, your shares might be replaced with shares of another company. The number of shares you get will be prescribed by an announced formula. Some deals involve both stock and cash.
When a deal you're interested in is announced, track down its press releases for details. If you can't find the press release, look for it or for the terms of the merger on the company's website -- or just give the company's investor relations department a jingle and ask for the scoop.
A Boston Globe article detailed the deal between Gillette
In this article, Rich Duprey explained how the merger between Sears and Kmart would shake out: "Kmart shareholders will receive one new share in the new holding company for each share they own, while Sears shareholders have the option of receiving $50 per share in cash or getting a half share in the holding company for each share of Sears stock they own."
In another article, Rich went into much more detail on what shareholders should think about when faced with a merger.
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