What happens to stock options when a company is bought out?

May 23, 2005

Subject: Stock option Question
Date: Wed, 04 May 2005
From: Anonymous

What happens to vested stock options that are “under water” if the company is bought by a public company?

For example, company A granted options to purchase 1,000 shares @ $20 which are vested. The trading price for the stock is $17. If company B buys company A and the company B stock price is $25, what will happen with the employee stock options of company A?


Date: Fri, 13 May 2005

Hello Anonymous,

It depends.

If company B simply buys out company A or buys out the assets of company A, the options may simply disappear.

If the transaction is structured as a reorganization, a ratio may be determined to convert the employee stock options to options for company B shares.

If you are in this situation, your company should tell you how you will be affected.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options – Executive Tax and Financial Planning Strategies.

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