The tech world has been abuzz with the news of the VMWare acquisition by Broadcom since it was announced. Even for Broadcom, which is a serial acquirer, this is a big deal. 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), and owned shares. For many employees, these are an important piece of your total compensation package, and understanding how they will be handled in this transaction is crucial to receiving everything that you have earned.
In this comprehensive guide, we will delve deep into the intricacies of the VMWare-Broadcom 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.
For Some Context:
Before we dive into the specifics, let's first understand why the handling of your employee stock options, RSUs, and owned shares in the VMWare-Broadcom acquisition is so vital. Here are two significant reasons:
Avoiding Costly Errors: In large-scale corporate transactions like this one, the amount that you’ve receive for your stock is formulaic (i.e., a specific amount of cash and/or shares for every share, stock option, or RSU 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 the deal 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 an employee was offered stock options or RSUs and they do not have stock grant documents in hand to substantiate that they were formally issued, an employee would have no recourse if they did not remedy the situation before the close of the deal.
Choosing the Right Compensation Mix: The way you receive your compensation can vary, ranging from cash to Broadcom stock or a combination of both. The choices you make regarding the mix of cash and stock do have implications for how much you will ultimately receive, and when you can access it.
Pro-tip: Even though payouts are meant to be the same regardless of how much stock or cash you request, employer stock is subject to the limitations imposed by quarterly trading windows and fluctuating market value, while cash isn’t affected by either.
How Paceline Can Help
At Paceline Wealth Management, we are committed to helping you make the most of your employer stock proceeds (or new Broadcom shares) that you receive as a result of the VMWare-Broadcom 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, including potential acceleration, 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 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 is always 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 Broadcom Stock Holdings:
We will collaborate with you to determine the most appropriate course of action for managing your Broadcom stock. This includes deciding when to sell or reinvest any new shares of Broadcom stock that you receive into other assets to optimize your overall investment portfolio.
Upon Transaction Close
As the VMWare-Broadcom acquisition reaches its closing stages, you will be faced with critical decisions regarding the handling of your owned shares, stock options, and RSUs. Let's take a closer look at your options and what each entail:
Owned Shares:
Cash: You have the option to receive a cash payout of $142.50 per share.
Broadcom Stock: Alternatively, you can choose to receive 0.25 shares of Broadcom stock.
Combination: You also have the flexibility to request a combination of cash and Broadcom stock based on your preferences.
Note: The final outcome will depend on the aggregate election made by all shareholders and will be prorated accordingly.
Stock Options:
In the Money: If your stock options are "in the money" (i.e., the current market value of the stock exceeds the exercise price), they will become immediately vested. The compensation you receive for these options will consist of 50% cash and 50% Broadcom stock. You’ll still receive the same amount of money as with owned shares, but you do not have the choice to request a specific mix of cash and stock.
RSU – Time Vested:
RSUs that are subject to time-vesting will be converted into new Broadcom RSUs. These converted RSUs will then follow the original vesting schedule based on the terms outlined in your RSU stock grant.
Note: If you have RSUs which have already vested and were delivered to you (i.e., they can be traded) they are now owned shares, not RSUs (i.e., see above).
RSU – Performance-Vested:
If your RSUs are subject to performance-vesting, the performance-based vesting will be assumed to have been satisfied, and they will vest as outlined in your RSU agreement.
Putting all the pieces together
Navigating the VMWare acquisition by Broadcom presents both opportunities and challenges. Your employee stock options, RSUs, 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 a discovery meeting 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, physicians, and those seeking financial planning services.