A tender offer announcement is often the first real chance employees get to turn paper equity into cash, and the decision of whether and how much to sell involves real tradeoffs rather than an obvious choice. This post covers what a tender offer actually is, the tradeoffs involved in participating, and the practical mechanics of the decision.
What is a tender offer?
A tender offer is a formal offer, usually from an investor or the company itself, to buy shares directly from existing shareholders at a specified price, during a specific, limited window of time. Participation is voluntary. You can typically choose to sell none, some, or all of the shares you’re eligible to sell, up to whatever cap the offer allows.
What are the actual tradeoffs in deciding whether to sell?
Selling locks in a known, guaranteed amount of cash today, removing both the upside if the company’s value continues climbing and the downside risk if it later falls or the company struggles. Not selling keeps your full position exposed to both possibilities: potentially greater future value if the company continues to succeed, or a total loss if it doesn’t. There’s also a liquidity consideration independent of future performance: cash today can be used, invested elsewhere, or diversified away from a single company, while shares remain tied to that one company’s fate until your next liquidity opportunity.
Does the tender offer price tell me anything about the company’s health?
It reflects what a specific buyer was willing to pay at that specific moment, which is useful information but not a guarantee of future value in either direction. A tender offer priced below the last funding round can signal reduced investor enthusiasm, while one priced at or above it can signal continued confidence, but neither outcome predicts what happens next.
Do I have to exercise my options first to participate?
Usually yes, unless the specific tender offer is structured to allow a “net exercise,” where the strike price is deducted directly from the proceeds so you don’t need to come up with cash to exercise separately. Check the specific tender offer documentation your company provides, since this varies by transaction.
Is there a cap on how much I can sell?
Often, yes. Companies frequently limit how much of an individual’s vested, exercised shares can be sold in a given tender offer, both to manage the total transaction size and to keep employees meaningfully invested in the company’s continued success. The specific cap, if any, is set out in the tender offer terms.
Worked example
Say you hold 12,000 vested, exercised shares, and your company announces a tender offer at $14 a share, capped at 25% of each participant’s eligible shares.
You could sell up to 3,000 shares for $42,000 before tax, while keeping 9,000 shares exposed to whatever happens next. Selling the full 3,000 gives you certainty on that portion. Selling less, or none, keeps more of your position tied to the company’s future performance in either direction.
FAQ
Am I required to participate in a tender offer? No. Participation is voluntary, and you can typically choose to sell nothing at all if you’d rather keep your full position.
Does the tender offer price affect my strike price on unexercised options? No. Your strike price stays fixed regardless of the tender offer price. The tender offer only affects shares you already own or are eligible to exercise and sell as part of the transaction.
How is the sale taxed? Generally as a capital gain (or, for a same-day exercise and sale, as ordinary income on the ISO or NSO spread), depending on your specific holding period and option type. Confirm with a tax professional based on your specific shares.
Can I sell more than the company’s cap allows? Generally no. The cap set in the tender offer terms applies to everyone, and there’s typically no way to exceed it in that specific transaction.
What happens to shares I don’t sell? They remain in your hands, subject to the same restrictions as before, until your next liquidity opportunity, whether that’s another tender offer, an acquisition, or an IPO.
What to do next
The specific price, cap, and window for any tender offer at your company will be spelled out in the offer documentation you receive, and the decision of how much to sell depends on your own financial situation and view of the company’s prospects. You can model your own numbers for a potential sale at movewealth.io.
MoveWealth is not a broker-dealer, investment adviser, or lender. This is educational content, not financial, tax, or legal advice. Consult a qualified professional about your specific situation.