Mergers & Acquisitions
(Things you need to know…but no one will tell you!)
The National Association
of Stock Plan Professionals
Slide 1
Speakers
Barbara Wallace, CPA
Oracle Corporation
Jean Wong, CEP
(Formerly of Sun Microsystems, Inc.)
Moderator: Jim Vincent, CEP
E*TRADE Financial
The National Association
of Stock Plan Professionals
Slide 2
Why this panel? Why now?
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M & A on the rise
Tips for surviving M & A – Acquirer vs. Acquiree
Every deal is different – no “one size fits all” to M & A
M & A deals rarely take into the downstream effects on
stock administration
Be prepared! Know both sides before the next one
happens….
Overview
“merger" vs. "acquisition“ – what’s the difference?
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Acquisition:
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Merger
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One company takes over another
Target company ceases to exist
Buyer’s stock continues to trade
Unfriendly deals always called acquisitions
Pure definition - two same size firms agree to go forward as a single new company
Both companies' stocks are surrendered and new company stock is issued in its place.
Daimler-Benz + Chrysler = DaimlerChrysler
Real life – few true mergers of equals
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Allows company being bought to save face by being called merger
Conclusion
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In real life, not much difference between acquisition or merger
Classification of purchase really depends on whether friendly or hostile
Real difference lies in how communicated to Board, employees and shareholders
E*TRADE Financial Corporate Services, Inc. and its affiliates do not provide legal, accounting or tax advice. Always consult your
own legal, accounting and tax advisers.
4
Information flow - Acquirer
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Acquirer – what do you know/when do you know it?
 Involved in due diligence vs. total surprise
How much control do you have?
What can you say? When can you say it?
Waiting on regulatory approval
 Once approval is obtained, communication can begin
 Sun – Long waiting period
Information flow – Acquiree
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Acquiree – what do you know/when do you know it?
What can/cannot disclose to Acquirer
 2 independent companies until close
Want the information, but sometimes are ‘shut out’ or
provided only on a “need to know” basis
Large vs. Small – different dynamic
Controlling employee inquiries and panic
 Frequency and types of communication
Acquiree – How does this all start?
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Acquired company – How does it all start? How can you
tell something’s up
Sudden request for plan documents and forms of grant
agreements from Legal Department
Unusual requests from Legal Departments to “put
together a few reports” as of different dates
 Officers and Board OS, in the money
 Employee rank and file grant lists
Requests for stock based comp expense information
 Vesting, vested v. unvested, outstanding
Acquiree – How does this all start?
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Included in initial due diligence and pre-announce
activities?
 NDA
May learn about merger from press release
Special meeting may be held by management
immediately after announcement
IBM vs. Oracle vs. Cisco
Acquirer – How does it all start?
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“We got Sun!” Finally!!!
 Press release, other media
 Stock Services may not get involved until much later
 Smaller companies – may be sooner
Larger acquisitions – fewer hands involved during due
diligence
 Risk of leak has higher consequences
Insider Trading risk
 Cisco example
Acquirer – How does it all start?
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Oracle and Sun
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Advantage in knowing who you’re dealing with
Wait for clearance and legal approval
What to expect for the first meeting with Acquiree
E*TRADE Financial Corporate Services, Inc. and its affiliates do not provide legal, accounting or tax advice. Always consult your
own legal, accounting and tax advisers.
10
Acquirer – Next Steps
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Mining information – know what you’re dealing with
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TA, Broker – who do they use?
Database – what are we dealing with?
Vested vs. unvested – terms of the acquisition
Country specific approved plans?
Timing on S-8
E*TRADE Financial Corporate Services, Inc. and its affiliates do not provide legal, accounting or tax advice. Always consult your
own legal, accounting and tax advisers.
11
Acquiree – Next Steps
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First conversation – advantage in knowing each other
Set a positive tone
Get a copy of the merger agreement
 “What do I need to do?” notifications, special
situations
 Understand the definitions, i.e. exchange ratio
calculation
Create a detailed project plan
 Ensures team to stay focus
Acquiree
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Look for special considerations
 ESPP ‘special purchase’
 Vest accelerations, 1st and 2nd triggers
 Handling of terminated employees – global labor law
considerations
Know your database, know your plans
 May require dedicated sources – use consultants if
necessary to facilitate transition to acquirer
Acquiree
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What are the expectations on when transition is done?
 Will my team and I have a job?
 What shape is my database in?
Realistic: Make it a successful transition, make it work
 Making the transition successful does more for you
 Build your resume
 Establish good will with the acquirer
 Be prepared for anything!
Acquiree
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Challenge: How do you keep your staff around for the
duration of the transition?
 Increase frequency of one-one-ones, staff meetings
 Know your team
Keep Management up to date on issues/potential
problems
Continue to work closely with business partners, i.e.
Payroll, Tax, Finance, External Reporting
E*TRADE Financial Corporate Services, Inc. and its affiliates do not provide legal, accounting or tax advice. Always consult your
own legal, accounting and tax advisers.
15
“Gotcha’s” To Look Out For
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Data Privacy
 Acquirer need for info vs. data privacy laws
Cash Out Procedures
 Unique country situations, i.e. Belgium
Broker re-organization process
 Distribution of cash exchange proceeds for stock plan
accounts
Transfer Agent DWAC process
 Issuing shares during “chill” period
 Final share count: plan reserves & outstanding
common stock
“Gotcha’s” To Look Out For
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Handling of Disqualification of Qualified Stock Plans
 Employee Communication
 Collection/payment of taxes deferred taxes
 Post close actions with tax authorities
Grant data conversion to Acquirer stock admin system
 Data mapping
 Resources requirements
Data Privacy
 Pre Close vs. post close
 Global considerations
Gotcha’s” To Look Out For
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ESPP Disqualifying Dispositions
 Need to report upon close – Acquiree or Acquirer?
 Solicit support from broker(s) for data
Final period reporting “close”
 Actual close date may require completing another
period close cycle – double work
 Coordinate closely with External Reporting – will need
to finalize FAS123r numbers as of close date
Need to maintain employee tax records through following
tax cycle