RSUs and Mergers or Acquisitions: What Happens To Your RSUs If Your Company Gets Acquired?

Casey Fenton

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December 7, 2023

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Remember when Microsoft acquired LinkedIn for a whopping $26.2 billion back in 2016? It wasn't just the top executives who saw a windfall; employees with equity compensation like RSUs found themselves in a new financial landscape overnight. For some, this was a ticket to immediate financial gains, while others faced confusion and missed opportunities due to a lack of information.

Just like the LinkedIn employees who suddenly found their equity compensation in the hands of a new parent company, you might be in a similar situation one day. That's why understanding what happens to your RSUs in the event of a merger or acquisition is crucial. This comprehensive guide will break down what you need to know to ensure your RSUs continue to deliver value and to help you comply with necessary regulations.

What Happens During An Acquisition or a Merger?

When two companies decide to merge or when one company acquires another, there's a lot of legal and financial restructuring that takes place. Typically, these activities will involve shareholders, and that includes employees with RSUs.

A merger generally involves two companies combining to form a new entity. In an acquisition, one company buys another. These processes can vary in complexity and duration, but they almost always involve some changes to company stock.

How Does an Acquisition Impact A Company?

Acquisitions bring about many changes in company structure, culture, and operation. But let's focus on the financials. The company being acquired usually experiences a significant change in stock valuation. In most cases, the stock price of the acquiring company may dip due to the costs involved, while the stock of the company being acquired could rise.

These fluctuations can have immediate implications for your RSUs. You might see sudden gains or stand to lose potential income if you're not prepared.

Factors Affecting the Treatment of RSUs During and After Acquisition

When your company is acquired or merges with another, it's essential to recognize that multiple variables will determine how your RSUs are treated. Knowing these factors can better prepare you for a range of scenarios, allowing you to take proactive steps to maximize your returns and comply with regulations.

1. Regulatory Considerations

Firstly, the way your RSUs are treated during an acquisition may be affected by regulations, both local and international. If your company is acquired by an entity from another country, you may face specific regulatory challenges that affect the value, taxation, or liquidity of your RSUs.

2. Market Conditions

Current market conditions can also influence the treatment of your RSUs. A booming stock market may make RSUs a more attractive asset for the acquiring company to retain, whereas a bearish market might lead to a preference for cash payouts.

3. Company Strategy

The goals of the acquiring company can significantly impact the way RSUs are treated. For example, if the acquiring company aims to retain talent, it may offer more favorable conversion or vesting options for your RSUs.

4. Employee Status

Your level within the company and your job function could also influence how your RSUs are treated. High-ranking employees or those with critical skills may have negotiation leverage, potentially leading to more favorable terms.

5. Timing of the Acquisition Relative to Vesting Schedule

The closer you are to your RSUs' vesting dates, the more likely it is that those RSUs will be dealt with more urgently, possibly triggering accelerated vesting or an immediate cash payout. In contrast, RSUs far from their vesting date might be converted into the acquiring company’s RSUs based on a predetermined ratio.

6. Acquirer’s Financial Health

The financial stability of the acquiring company can also affect how your RSUs are handled. A financially robust acquirer might be more willing to offer a favorable stock conversion ratio or accelerate vesting. On the other hand, a less stable acquirer might push for cash payouts to minimize risk.

7. Cultural Fit and Company Policy

The acquiring company’s philosophy and policies concerning employee compensation can also affect the treatment of your RSUs. Some companies have a culture of rewarding employees with equity, while others may prefer different forms of compensation.

Understanding these variables can help be in a better position to predict how an acquisition could impact your RSUs. This knowledge enables you to prepare adequately, consult with advisors, and potentially negotiate for better terms.

What Happens to My RSUs When My Company Gets Acquired?

When your company announces that it's about to be acquired or merged with another entity, it's natural to feel a sense of unease, especially regarding your financial assets like RSUs. Although general terms might be communicated through company-wide memos or meetings, the precise impact on your RSUs can vary based on several factors. Here's a detailed breakdown:

The "Wait and See" Period

The initial period following the announcement of an acquisition often involves much speculation but few concrete details. During this "wait and see" time, it's unlikely you'll get definitive information about the fate of your RSUs. Your company and the acquiring company will be ironing out the terms of the deal, which may include provisions for handling RSUs.

Official Communication

As the deal progresses, expect to receive formal communication outlining exactly how your RSUs will be handled. This often comes in the form of a written addendum to your existing RSU agreement, and it will specify the terms under which your RSUs will either be converted, cashed out, or accelerated.

Conversion

In this scenario, your existing RSUs would be converted into RSUs of the acquiring company. The ratio of conversion is usually based on the acquisition price and the current valuation of both companies involved. You'll want to study this ratio carefully as it will define the worth of your new RSUs.

Acceleration

If your RSUs are subject to accelerated vesting due to the acquisition, this means they become yours to sell or transfer much sooner than initially planned. This is typically seen as a favorable outcome, but it can have tax implications that you should be aware of.

Cash Payout

In some instances, the acquiring company may offer a lump sum cash payout for your RSUs. This sum is usually based on the current valuation of your company's shares. While a cash payout provides immediate liquidity, it can come with a hefty tax bill, so weigh your options carefully.

Legal Ramifications

In the wake of an acquisition, there may be a 'blackout period,' a stretch of time during which you are not allowed to sell or transfer any shares you own. This is to prevent insider trading and usually lasts until the acquisition deal is publicly finalized.

The Fine Print

The specific details about your RSUs can sometimes be buried in legal jargon within your initial RSU agreement or the addendum you receive post-acquisition. Make sure you read these documents carefully or consult a legal advisor to ensure you understand how your RSUs will be treated.

Understanding each of these detailed aspects will help you be better prepared for any changes to your RSUs due to an acquisition. Knowledge is power, and in a situation as pivotal as this, being informed can make all the difference for your financial future.

Steps for Ensuring RSU Gains During Company Acquisition

When news breaks that your company is being acquired, you might experience a mix of emotions, ranging from excitement to apprehension. However, what you can’t afford is to be passive, especially when it comes to your RSUs. Here’s a detailed action plan to guide you through the process of protecting your RSU gains during a company acquisition:

Step 1: Review Your RSU Agreement

Start by pulling out the original agreement detailing your RSU grant. Look for any clauses or provisions that pertain to “change of control” or acquisitions. This section is likely to outline how your RSUs will be affected, offering critical insights into potential scenarios.

Step 2: Be Alert for Company Communications

An acquisition is a big deal, and both companies will likely issue announcements and updates regarding the merger. Pay close attention to these communications. While they might not spell out the specifics of what will happen to your RSUs, they can give you a sense of the merger's timing and the involved parties, allowing you to prepare accordingly.

Step 3: Consult Financial and Legal Advisors

An acquisition is a complex process with legal and financial ramifications. Consulting professionals can provide you with tailored advice to navigate this transitional period. A financial advisor can help you assess your options and their tax implications, while a legal advisor can interpret contractual obligations and rights you might have in your RSU agreement.

Step 4: Engage With HR and Employee Benefits Department

Don't wait for your employer to inform you; take the initiative to engage with your Human Resources or Employee Benefits department. Schedule a meeting or send an email with your specific queries about how the acquisition will affect your RSUs. Keep track of all correspondence and outcomes of any meetings.

Step 5: Evaluate Tax Implications

An acquisition could lead to accelerated vesting or a lump sum payout of your RSUs, both of which carry tax implications. Consult a tax advisor to understand your liability under different scenarios, and plan how to minimize your tax burden while maximizing gains.

Step 6: Consider Your Long-term Investment Strategy

The acquisition's impact on your RSUs should be considered in the context of your broader financial plan. Discuss with your financial advisor whether holding onto converted RSUs aligns with your long-term investment strategy, or whether a cash payout would be more beneficial.

Step 7: Prepare for Negotiations

If you hold a senior position or possess specialized skills, you may have leverage to negotiate the terms affecting your RSUs. Be prepared to discuss your value to the company and why adjustments to your RSU agreement could be mutually beneficial.

Step 8: Document and Confirm All Changes

Once you have a clear understanding of how your RSUs will be treated, make sure to get everything in writing. This could be in the form of an updated RSU agreement or an addendum to your existing contract. Review this with your legal advisor to confirm that it aligns with your understanding and negotiations.

How to Talk to My Employer About My RSUs During and After Acquisition

Communication is vital, especially when your financial interests are at stake due to a company acquisition. Here’s a guide on how to engage in meaningful conversations with your employer about your RSUs during this transitional period.

1. Before The Conversation

Before you reach out to your employer, ensure you have all the facts and figures. Review your RSU agreement, corporate communication about the acquisition, and any industry news that might give you insight into the acquiring company’s standard practices regarding RSUs.

2. Choose the Right Time and Channel

Timing is everything. You'll want to initiate this conversation at a point when both you and your employer can focus on the subject at hand. Consider starting with an email to schedule a dedicated time to discuss the matter, preferably face-to-face or via a video call for more effective communication.

3. Be Clear and Specific

When you do get the opportunity to discuss your RSUs, be as clear and specific as possible. This is not the time for vagueness or ambiguity. Lay out your questions and concerns point-by-point, asking for clarification whenever necessary.

Example Questions to Ask:

  • How will the acquisition affect the vesting schedule of my RSUs?

  • Are there plans for accelerated vesting or a cash payout option?

4. Seek Transparency and Documentation

Encourage transparency by asking for written documentation that outlines any changes to your RSUs. This ensures that both parties are on the same page and provides a reference for any future discussions or disputes.

Alternatively, if your company hasn’t employed equity management software yet, you can advocate for its use to ensure transparency. For instance, Upstock’s RSU management platform can be modified to various visibility options that will guarantee transparency and timely documentation.

5. Listen Actively and Ask Follow-up Questions

It's essential not only to talk but to listen. Your employer may offer details you hadn’t considered, which could significantly impact your financial planning. Listen carefully and ask follow-up questions to ensure you fully understand your options and the implications.

6. Consult Legal and Financial Advisors

After your discussion, consult your financial and legal advisors to interpret any new information. They can provide you with specific advice tailored to your situation, helping you make the most informed decision possible.

7. Keep the Lines Open

Don’t let this be a one-off conversation. Keep the lines of communication open by scheduling regular updates. As the acquisition process progresses, details may change, and it’s crucial you stay updated on these developments.

8. Prepare for Contingencies

Lastly, be prepared for a range of outcomes. Your employer may not be able to give you all the answers or the answers you’d like to hear. Knowing your alternatives in such cases will help you adapt your strategy as needed.

Effective communication with your employer about your RSUs can equip you with the knowledge and confidence to navigate the complicated landscape of a company acquisition. While the process might be fraught with uncertainties, having open dialogues with your employer will help you mitigate risks and make the most of the opportunities that come your way.

Acquisition Doesn’t Have to Be Daunting for Your RSUs

Navigating the uncertain waters of a company acquisition can be daunting, but when it comes to your RSUs, knowledge and proactive engagement are your greatest allies. By understanding the factors that influence how your RSUs will be treated, taking strategic steps to secure gains, and fostering open dialogues with your employer, you're not just bracing for change—you're positioning yourself to thrive through it. While every acquisition is unique and laden with variables beyond your control, this comprehensive guide empowers you to safeguard your financial future amidst the complexities of corporate transitions.

If you need more information to ensure you maximize your RSUs, explore Upstock’s learning material or our blog here.

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ABOUT THE AUTHOR

Casey Fenton

Founder, Upstock & Couchsurfing, AI and Equity Innovator

Casey Fenton, the founder of Upstock & Couchsurfing and an AI and equity innovator, has revolutionized how we perceive and implement equity in the workplace. His foresight in creating platforms that not only connect people but also align their interests towards communal and corporate prosperity has established him as a pivotal figure in technology and community building. Casey speaks worldwide on topics including ownership mindset, worker equity, With Upstock and Couchsurfing, he has demonstrated an unparalleled expertise in harnessing technology for the betterment of community interaction and organizational benefits.

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