>>The converted options add to the total number of employee options outstanding in the acquiring company and thereby reduce the number of options than can be issued subsequently
That's not quite it.
In the all-cash deal, any in-the-money outstanding options get cashed-out immediately; out-of-the-money options simply get terminated.
In a stock-deal, options get converted in options in the new company. Thus if an option with a long time to expiration is a little out-of-the-money (or even a little in-the-money) it might still have substantial fair value when converted into an option in the new company.
Thus the "time value" of all the outstanding options get wiped out in a cash deal but not in a stock deal.
If all the outstanding options are very deep in-the-money, this delta would be negligible. If some of the outstanding options are out-of-the-money or less deeply in-the-money, then the delta can be significant.
Peter
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