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Tender offer modeling
I wrote a quick tender offer modeling calculator that you can access here.
This will show you what kind of money you can expect to make when participating in a tender offer. The parameters will be saved to local storage so they should persist across refreshes.
Tender offer parameters
- Tender offer price: This is the price at which each share will be purchased.
- Fair market value: This is the fair market price per share at the time of the tender offer. This value may be unknown and will most likely change based on the participation in the tender offer. The closer you can get to the actual FMV, the more accurate the estimated tax withholdings will be.
- Max vested percent: This is the maximum percentage of vested shares a participant is allowed to sell. Some companies will restrict a participant to a maximum percentage of vested, such as 20% or 50%.
- Vested: This is the number of vested shares you own that are eligible for sale in the tender offer. This number is usually based off the vested amount at the start of the tender offer.
- Cost basis: This is the fair market value per share at the time of exercise or purchase of your vested shares.
- Disposition: Select whether or not your shares are qualified or disqualified. Qualified shares must have been held for at least 1 year and 2 years after the option grant was issued to you.
- Tax rate: This is your ordinary income tax rate. If the tender offer price is more than the fair market value of the shares at the time the tender offer takes place, you'll owe ordinary income taxes on the spread between the fair market value and the tender offer price because the IRS sees this tender offer as a compensatory event, like a bonus.
- Capital gains tax rate: This is the capital gains tax rate for your tax bracket. For qualified dispositions, most people will fall into the 15% long term capital gains bucket. For disqualified dispositions, we'll just use your ordinary income tax rate as a substitute for short term capital gains. Capital gains tax is paid on the spread between the cost basis of the shares and the current fair market value of the shares.
- Future price per share: This is what you expect the price per share to be at some point in the future (such as at IPO). This value will be used to calculate the potential lost value that you will incur by selling shares in the tender offer today.