Merger: Should I take cash, stock, or both?
June 2, 2015 12:48 PM   Subscribe

I had some stock in a (private) company that is being purchased by another (public) company, and now they're asking me whether I want cash or stock. What's the right answer?

I have zero experience with stocks, investments, etc. However, I worked at a private company a few years ago and was allowed to purchase some stock options when I left. Now, the company has been purchased by a public company, and there is a merger happening.

I received a form that I need to return, and I'm supposed to indicate whether I would like to receive my consideration in the form of cash, shares in the parent company stock, or a combination of both.

What's the right answer? Should I consult a professional? If so, what kind of professional? (I don't even know the right words to google.)
posted by eleyna to Work & Money (13 answers total)
If you believe that the public company will increase in value, take stock. If you believe that it will decrease in value, take cash. If you believe it will increase in value but you need some cash right now, take a combination. If you don't know what it will do and you are young, take stock. If you don't know what it will do and you are old (-er or -ish), take cash and invest in conservative investments.

How has the public company performed in recent years? Does the company do something or make something that you believe will have long term value? Things like that.
posted by janey47 at 12:52 PM on June 2, 2015 [3 favorites]

If you don't really know, and want least-hassle, just take the cash.

Tax time, you'll probably owe for the profit, so note what you paid for the options and how much you got from the buy-out (ie your gain).

Then take the cash and put some in your IRA, save some for rainy day, spend some as mad money etc.
posted by k5.user at 12:59 PM on June 2, 2015

Cash is king. I can only think of two reasons to take the stock. The first is if you thought the stock would perform and you would buy the stock anyway if you had the cash to do so. That way taking the stock would reduce transaction costs. The second is if taking the stock would avoid immediate taxation on the payout. Then, if you thought the stock was a good investment and wanted to delay paying tax until you decided to cash out, you might consider it.
posted by rtimmel at 1:03 PM on June 2, 2015 [3 favorites]

I have zero experience with stocks, investments, etc.

Take the cash.
posted by mkultra at 1:18 PM on June 2, 2015 [2 favorites]

Cash - M&A destroys value on average. Think to yourself would you buy stock in this company randomly - also if you are still going to work for them better to diversify. See Enron / Lehman Brothers et al.
posted by laukf at 1:20 PM on June 2, 2015

The other way to look at it is that it's a windfall: you're no worse off if the stock fails to perform, you're more or less immune to the ups and downs it will go through, so there's no real reason not to take the stock and forget about it until you retire. It could do well, and it's not really a gamble when the only thing you have to lose is money you never expected to have.

So, I'd either split it or take all stock.
posted by DarlingBri at 1:32 PM on June 2, 2015

Cash. Then invest it in a broad based index fund and watch it outperform the single stock you would have held otherwise.
posted by yogalemon at 1:42 PM on June 2, 2015

Consult a tax professional. There are probably big tax implications of which you choose.
posted by GuyZero at 2:08 PM on June 2, 2015

Talk to a fee-based financial planner, and possibly a tax accountant. "Take all stock" or "take all cash" seem like crazy pieces of advice without knowing your financial status and history, and without knowing anything about the amounts of money we're talking about or the prospects of the post-merger company.
posted by craven_morhead at 3:14 PM on June 2, 2015 [1 favorite]

Are you getting the stock at market cost? E.g., if the current stock price is $10, would your choice between $1000 cash or 100 shares of stock?

If it's being offered at market cost, go for the cash.

If you're getting preferential pricing or options with a lower strike price, the question becomes more complicated.
posted by justkevin at 3:55 PM on June 2, 2015

Cash is taxable, the stock probably isn't. It may well make sense to take cash and diversify, although there's a tax cost to doing so.
posted by jpe at 3:58 PM on June 2, 2015

If you want to split the difference you could take the stock then immediately sell some of it.

Be sure to understand the tax consequences. You may have to pay capital gains tax in either case, if the current value of your stock in the private company is higher than when you acquired it.
posted by mono blanco at 9:38 PM on June 2, 2015

There's a LOT of complicated issues here.

1) Taxes. All that is income, and that can significantly change your tax bracket unless you plan for it, like dumping a good chunk of it into IRA or a trust or something. You need to talk to a tax professional / CPA.

2) Lots of potential restrictions. A lot of these mergers will block you from selling your stock for X period (1 or more years) as stipulation so nobody floods the market. You need to know the "fine print". Again, need to talk to accountant.

3) What are the long-term prospects of the public company?

4) What are your needs now? Do you want to spend a nice chunk for some deserved travel / vacation and a little splurge on yourself? or are you saving it all for the kids (if you have any, that is) and/or retirement.

You may want to answer these questions so you would be ready to talk to your CPA.
posted by kschang at 2:06 AM on June 3, 2015

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