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Helping Employees Navigate the Financial Implications of a Tender Offer

Sometimes, one of the most critical times in the employee tender offer process is what comes immediately after it. With cash or shares in hand, your employees may be left with questions such as: How will I be taxed on the proceeds of my sale? What happens to the rest of my holdings? What should I do with the money I receive from the tender offer?

Helping employees answer these questions is an important part of promoting a healthy equity ownership culture. Tender offers can be complex and individual tax and financial situations can change significantly once employees actually receive their proceeds. While the hope is that employees will consult a tax or financial advisor prior to participating in a tender offer, that is not always the case.

Let’s review some of the short and long-term financial implications of participating in a tender offer.

Calculating the Tax Bill

Every participating employee will fill out a Form 8949, which is used to report the sale or exchange of capital assets on a federal income tax return. How much employees will owe to the IRS depends on a number of factors, including what types of options were sold, how long they were held, how they were exercised, and the sale price.

The tax implications of various equity holdings are very complex; however at the completion of the tender offer, every employee should have a clear understanding of how their proceeds will be taxed (as ordinary income, or short or long-term capital gains taxes), whether they will need to pay an Alternative Minimum Tax (AMT) and if the proceeds from their sale push them into a higher marginal tax bracket.

Again, you should consider bringing in a tax or financial professional that can communicate all of this to employees prior to the tender offer; but, in the event that your employees still have questions, we recommend providing additional resources or a CPA than can help them map out their tax obligations. Tax and financial professionals can also walk employees through options to potentially lower their overall tax bill, such as through charitable giving or leveraged gifting to a family member.

Planning Their Next Big Financial Event

Many employees will likely already have plans for how they want to spend the proceeds from their equity sale: for example, purchasing a home, paying off student loans, etc. Others may want to know how to preserve or grow that money over time through an investment portfolio.

In either situation, providing your employees with helpful resources, or one-on-one guidance with a financial professional, can help them get the most out of their tender offer participation. Particularly for younger employees, a tender offer may be the first significant financial event in their adult lives. As an employer, it is in your interest to keep them focused on their long-term financial health and remind them of how your company helps to support it.

Morgan Stanley at Work, Shareworks, Morgan Stanley Smith Barney LLC, and its affiliates and employees do not provide legal or tax advice. You should always consult with and rely on your own legal and/or tax advisors. CRC 3254084 10/21