what is proration 
proration is a type of corporate action that may arise during an event such as an acquisition where a company splits its original cash and equity offer in response to shareholder preferences in certain situations the acquiring firm will offer a combination of cash and equity and shareholders of the firm being acquired can elect to take either if available cash or shares are not sufficient to satisfy the offers that shareholders tender the remaining stock is prorated the company grants a proportion of both cash and shares for each offer tendered so that everyone gets their fair share of the deal proration should not be confused with pro rata which indicates some proportional allocation or distribution understanding prorationproration supports shareholders by ensuring that a company holds to its initial target and does not favor some investors over others e g giving a percentage of shareholders the cash they wanted while delivering shares to the rest while this means that every investor might not receive their initial election it ensures that all receive the same value other situations in which the need for proration might occur include bankruptcy or liquidation special dividends stock splits and spinoffs while these corporate actions must be approved by shareholders and a company will typically list them on a firm s proxy statement in advance of its annual meeting shareholders must occasionally sacrifice to maximize wealth for all shareholders proration and merger considerationsmergers occur for several reasons including to gain market share through a horizontal merger reduce the costs of operations through a vertical merger expand to new markets or unite common products through a congeneric merger after a merger shares of the new company are distributed to existing shareholders of both original businesses 