EMI Options

d_barratt

Hi all,

I'm hoping for some advice regarding EMI share options.

I'm senior in the company I work for and over the last few years have been awarded EMI options as part of my overall compensation - the value of my options roughly equates to £350-£400K.

Approximately 75% of my options have now vested and I have a window (due to signing a new agreement) whereby I have the ability to purchase them at approximately a fifth/sixth of what they're currently worth. The company is planning to sell in about 6-9 months, so I'm trying to weigh up if purchasing them to become shares (and therefore access to dividends) makes sense, or if it makes sense to hold off and wait for the company sale.

I've been advised that dividends will be paid and I would receive roughly 50% of my option investment back by the time the company sells - therefore gaining the dividend amount over and above what I would receive if I simply wait until the company exits and don't collect dividends.

I have decent pension contributions, an S+S ISA etc, but the option purchase would require an investment equal to the majority of my emergency/spare cash. From a purely mathematical perspective the purchase makes sense, but i'm wondering if anyone has experience/any ideas to offer a different way that I should be looking at this?

bowlhead99

d_barratt said:

I've been advised that dividends will be paid and I would receive roughly 50% of my option investment back by the time the company sells - therefore gaining the dividend amount over and above what I would receive if I simply wait until the company exits and don't collect dividends.

I have decent pension contributions, an S+S ISA etc, but the option purchase would require an investment equal to the majority of my emergency/spare cash. From a purely mathematical perspective the purchase makes sense, but i'm wondering if anyone has experience/any ideas to offer a different way that I should be looking at this?

Potential negative outcomes of exercising your option to buy the shares, and becoming entitled to the dividends as a shareholder, could be that the company doesn't actually pay the level of dividend you hope, or alternatively it does but then the company fails to sell and the exit is not achieved, or not for greater than your purchase cost.  You would then be stuck with 'dead weight' shares which you spent most of your spare cash on, in a company which is not succeeding.   If instead you had just played it cautious and had the options converted to shares and immediately sold out at the time of exit, you would not have risked being out of pocket.  Although you and your fellow senior managers might be confident today that the deal looks like it's going ahead in 6-9 months, 'planning to sell' is not money in the bank and these things can turn on a sixpence.

As you say, if it all works out like you hope then mathematically it would make sense to buy in at the option price and catch the dividend while waiting to sell the shares at a nice profit further down the line. But commercially it may not all work out as you hope, as other investors in private companies will have sometimes found out to their cost, in the past. So if you kept the options unexercised (assuming there is no risk of them lapsing if you don't exercise them now), you would eliminate that downside risk.  At the end of the day the option is a right but not an obligation, so you don't have to do it if you don't feel comfortable with the commitment and don't mind missing out on the dividend that seems to be on the table if you want it.