Biotech Values

[DewDiligence]

In buyout situations, when key managers of the company to be acquired are stuck with hopelessly underwater stock options, I was wondering how much of a impediment this is in getting them to agree to the buyout?

In general, this is a substantial impediment, IMO.

As an incentive to do the deal, can the acquiring company offer to exchange these underwater options for stock options in the acquiring company?

In a stock-for-stock merger, the conversion of options in the acquired company to comparable options in the acquiring company is standard practice. However, in a cash buyout, I’ve never seen a case where managers of the acquired company received options in the acquiring company unless they were invited to become part of the management team at the acquiring company.

A common way to induce executives with underwater options to agree to a lowball buyout is to bribe them with no-show “consulting” jobs at their regular pay rate for a period of one year or so.