Selling options on acquisition

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I've been trying to understand this hypothetical scenario wherein a company in which you own options is acquired. In it, the author posits you own .67% and 20,000 shares ($2 strike price, $4 share price) of a company that gets acquired for $50,000,000 and pays out about $5,000,000 to investors due to preferred stock terms, leaving $45,000,000.

I followed this scenario to this point, but then he says

you own 20,000 shares with a current share price of $4 per share, but you still have to buy these options to convert them to common stock. Your strike price is $2 per share, so you’ll have to cough up $151,196 to purchase the shares, which you will resell for $4 per share, getting you $151,196 in cash.

Here he loses me. I follow the percentages ($2 is 50% of $4 and 50% of .67% of $45M is about 150k) but I don't follow the share numbers.

• Why would I not pay $2 per share, which was my strike price (total: $40k)


• Are the shares not worth more than $4 since the acquisition?


• By this math, if the investor hadn't increased the share price to $4 (i.e. if there was no new investor but the company was still acquired for $50M) what would have happened? It feels like my shares would be worth less, and that doesn't make a lot of sense to me.

startup acquisition

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asked 2 mins ago

Ben

1192

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I've been trying to understand this hypothetical scenario wherein a company in which you own options is acquired. In it, the author posits you own .67% and 20,000 shares ($2 strike price, $4 share price) of a company that gets acquired for $50,000,000 and pays out about $5,000,000 to investors due to preferred stock terms, leaving $45,000,000.

I followed this scenario to this point, but then he says

you own 20,000 shares with a current share price of $4 per share, but you still have to buy these options to convert them to common stock. Your strike price is $2 per share, so you’ll have to cough up $151,196 to purchase the shares, which you will resell for $4 per share, getting you $151,196 in cash.

Here he loses me. I follow the percentages ($2 is 50% of $4 and 50% of .67% of $45M is about 150k) but I don't follow the share numbers.

• Why would I not pay $2 per share, which was my strike price (total: $40k)


• Are the shares not worth more than $4 since the acquisition?


• By this math, if the investor hadn't increased the share price to $4 (i.e. if there was no new investor but the company was still acquired for $50M) what would have happened? It feels like my shares would be worth less, and that doesn't make a lot of sense to me.

startup acquisition

share

asked 2 mins ago

Ben

1192

add a comment | 

up vote
0
down vote

favorite

up vote
0
down vote

favorite

I've been trying to understand this hypothetical scenario wherein a company in which you own options is acquired. In it, the author posits you own .67% and 20,000 shares ($2 strike price, $4 share price) of a company that gets acquired for $50,000,000 and pays out about $5,000,000 to investors due to preferred stock terms, leaving $45,000,000.

I followed this scenario to this point, but then he says

you own 20,000 shares with a current share price of $4 per share, but you still have to buy these options to convert them to common stock. Your strike price is $2 per share, so you’ll have to cough up $151,196 to purchase the shares, which you will resell for $4 per share, getting you $151,196 in cash.

Here he loses me. I follow the percentages ($2 is 50% of $4 and 50% of .67% of $45M is about 150k) but I don't follow the share numbers.

• Why would I not pay $2 per share, which was my strike price (total: $40k)


• Are the shares not worth more than $4 since the acquisition?


• By this math, if the investor hadn't increased the share price to $4 (i.e. if there was no new investor but the company was still acquired for $50M) what would have happened? It feels like my shares would be worth less, and that doesn't make a lot of sense to me.

startup acquisition

share

asked 2 mins ago

Ben

1192

I've been trying to understand this hypothetical scenario wherein a company in which you own options is acquired. In it, the author posits you own .67% and 20,000 shares ($2 strike price, $4 share price) of a company that gets acquired for $50,000,000 and pays out about $5,000,000 to investors due to preferred stock terms, leaving $45,000,000.

I followed this scenario to this point, but then he says

you own 20,000 shares with a current share price of $4 per share, but you still have to buy these options to convert them to common stock. Your strike price is $2 per share, so you’ll have to cough up $151,196 to purchase the shares, which you will resell for $4 per share, getting you $151,196 in cash.

Here he loses me. I follow the percentages ($2 is 50% of $4 and 50% of .67% of $45M is about 150k) but I don't follow the share numbers.

• Why would I not pay $2 per share, which was my strike price (total: $40k)


• Are the shares not worth more than $4 since the acquisition?


• By this math, if the investor hadn't increased the share price to $4 (i.e. if there was no new investor but the company was still acquired for $50M) what would have happened? It feels like my shares would be worth less, and that doesn't make a lot of sense to me.

startup acquisition

startup acquisition

share

asked 2 mins ago

Ben

1192

share

asked 2 mins ago

Ben

1192

share

share

asked 2 mins ago

Ben

1192

asked 2 mins ago

Ben

1192

asked 2 mins ago

Ben

1192

1192

add a comment | 

add a comment | 

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