The tech world has been abuzz with the news of the CyberArk acquisition by Palo Alto Networks since it was announced. This M&A transaction holds the potential for exciting changes and opportunities, but it also raises important questions about what will happen to your employee stock options, Restricted Stock Units (RSUs), Performance Stock Units (PSUs), and owned shares.

For many employees, these are an important piece of your total compensation package, and here at Paceline we specialize in guiding clients through M&A with a clear goal: understanding how their stock will be handled in the transaction, and receiving every dollar they have earned and not one dollar less.

In this comprehensive guide, we will delve deep into the intricacies of the CyberArk - Palo Alto Networks acquisition, providing you with the knowledge and strategies you need to navigate this complex process confidently, while avoiding costly mistakes and missed opportunities.

Why is this so important?

In most cases, waiting for a deal to close can be a big distraction from day-to-day work activity, so if you are in that boat as many people find themselves, take the time to get your finances in order so you can make the most of this opportunity, while reducing any potentially related stress.

For Some Context

Before we dive into the specifics, let's first understand why the handling of your employee stock options, RSUs, PSUs, and owned shares in the CyberArk - Palo Alto Networks acquisition is so vital. Here are two significant reasons:

Avoiding Costly Errors

In large-scale corporate transactions like this one, the amount that you will receive for your stock is formulaic (i.e., a specific amount of cash and shares for every share, stock option, RSU, or PSU you own), but the process for actually paying them out tends to be manual. Instances of employees having their payout miscalculated or incorrectly distributed, or stock grants not being formally issued in advance of the close of an acquisition do occur.

To be clear, this is not a reflection on either party involved, but an observation of what some of our clients have experienced during periods of organizational transition. Given the whirlwind of activity, and staff turnover that tends to coincide with M&A, it is critical to understand exactly what you have earned, and that you promptly receive it.

Pro-tip: In cases where a payout does not reflect the full amount that has been earned, employees often struggle to correct the issue if they do not have their stock grant documents in hand to substantiate the amount that they are due to receive.

When an acquisition approaches its final stages, stock plan documents and data often begin to migrate to their new home, further complicating any issues discovered late in the process. If an error was not discovered until after the deal was completed, an employee would likely have no recourse.

How Paceline Can Help

At Paceline Wealth Management, we are committed to helping you make the most of your employer stock proceeds (or new Palo Alto Networks stock awards) that you receive as a result of the CyberArk - Palo Alto Networks acquisition. Here's how we can assist you at every step of the way:

1. Comprehensive Data Gathering:

We will work with you to gather all relevant information, including stock grant documents and details on vesting schedules. Among employees with stock-based compensation, it’s not uncommon to have multiple stock grants, and several different types of employer stock. Each of these has its own attributes in terms of how value is achieved, and how taxes are handled.
Understanding the nuances of vesting, as each type of employer stock is handled differently. Part of this relates to rules in the company shareholder plan, and part of this relates to how the deal was negotiated between the acquisition target and the acquiring firm.

2. Strategic Financial Planning:

Once we have a clear picture of your stock-based compensation, we will help you update your financial plan to align with your new financial situation. Unlike reinvesting or rolling over an old 401(k) or IRA, employer stock awards are held in a taxable investment account so speaking with a financial advisor about finding ways to reduce taxes is an important consideration. That’s because when M&A occurs, it typically results in compensation that is earned over multiple years (i.e., stock vesting periods) arriving all at once, pushing you to a higher tax bracket.
We will discuss your financial goals and get a close understanding of what has worked well for you in the past (and equally important, what has not). Only once we get to know what matters most to you, and what your financial goals are, can we provide guidance on how to manage the proceeds you receive, including options for saving, investing, or repaying debt.

3. Optimizing Palo Alto Networks Stock Holdings:

We will collaborate with you to determine the most appropriate course of action for managing your new Palo Alto Networks stock. This includes deciding when to sell or reinvest any new shares of Palo Alto Networks stock that you receive into other assets to optimize your overall investment mix.

Upon Transaction Close

When the CyberArk - Palo Alto Networks acquisition reaches its closing stages, you will be faced with critical decisions regarding the handling of your owned shares, stock options, RSUs and PSUs. Let's take a closer look at how each form of employer stock will be handled:

Owned Shares:

You will receive the merger consideration, which is 2.205 shares of PANW stock, plus $45 in cash.
Note: This includes previously exercised stock options, as well as vested RSUs and PSUs which have converted into common shares of CyberArk stock.

Stock Options:

In the Money (vested): If your stock options are "in the money" (i.e., the merger consideration amount of $25 exceeds the exercise price), and they are vested, you will receive the merger consideration less the exercise price.
In the Money (unvested): If your stock options are “in the money”, but have NOT yet vested, they will be converted into new Palo Alto Networks stock options with the same terms and conditions (i.e., vesting schedule, acceleration).
Out of the Money (vested, or unvested): If your stock options are “out of the money”, meaning the cost to exercise exceeds the merger consideration, they will be canceled.

RSU:

CyberArk RSUs will be converted into new Palo Alto Networks RSU grants, based upon a ratio defined in the merger agreement.
The ratio by which RSUs will be converted is calculated as the merger consideration, divided by the Palo Alto Networks stock price at the effective date of the deal, rounded to the 4th decimal place.

PSU:

CyberArk PSUs will be converted into new Palo Alto Networks PSU grants, similar to RSUs as described above. Performance vesting requirements for which the performance measurement period has not yet completed will be treated as having achieved their target level of performance.

Putting all the pieces together

Navigating the CyberArk acquisition by Palo Alto Networks presents both opportunities and challenges. Your employee stock options, RSUs, PSUs, and owned shares are valuable assets that require careful handling, and that’s where our expertise comes in. At Paceline, we are dedicated to helping you make informed decisions that align with your financial goals, and we are here to guide you through every step of this financial journey.

Big financial events like this don’t happen very often, and even among veterans of the tech industry every M&A transaction is unique, and your financial situation will be different each time you encounter it. That’s why it’s so valuable to have a financial advisor that specializes in helping people in tech navigate the process of employer M&A.

To get started, schedule an intro call with Paceline using the calendar tool below.

This blog was written by Jeremy Bohne, Principal & Founder of Paceline Wealth Management. Paceline is a fee-only investment advisor serving clients in the Boston area, and on a remote basis throughout the country. Paceline specializes in helping tech and biotech executives, business owners, physicians, and those seeking financial planning services.