What happens to your equity in an acquisition

When a company is acquired its shares are bought at an agreed price. That price is the merger consideration. Every share becomes that amount of cash, or that many shares of the buyer, or some mix.

Employee equity has to be dealt with too, and the rules for it are written into the merger agreement. That document is filed with the SEC, usually attached to an 8-K within a day or two of signing, and it is the only place the answer actually lives.

The pattern in most large deals splits along one line. Vested awards are settled. Unvested awards are converted into equivalent awards over the buyer's stock, keeping the original vesting schedule.

That line matters more than the headline price. It decides whether you get money now or a new promise from a new employer.

Microsoft agreed to acquire Activision Blizzard at $95.00 per share in cash. The agreement was signed in January 2022 and the deal closed on October 13 2023.

Work the vested option line. A vested option with a $60.00 exercise price paid $95.00 minus $60.00, which is $35.00 a share. That is intrinsic value settled in cash, exactly as you calculated it on day 6.

Now the underwater line, which is the one people are shocked by. An option struck above $95.00 had no intrinsic value at the deal price, and it was cancelled without payment. Not converted. Not compensated. The right expired with the company.

The conversion formula for unvested awards used an exchange ratio of $95.00 divided by Microsoft's five-day volume-weighted average share price. Unit counts were multiplied by that ratio and option exercise prices divided by it, so the value carried across while the vesting schedule stayed where it was.

Read the last row once more. Anything due to vest within 120 days of closing was accelerated and treated as vested, so it was cashed out rather than converted. That single clause decided whether thousands of people got cash or a Microsoft award.

The trap is assuming acquisition means cash for everyone.

Vested holdings were cashed out. Unvested holdings became Microsoft awards with the same dates attached. If you had eighteen months left to run, you still had eighteen months left to run, now at a different company. The deal did not free anything except what had already vested.

The second trap is the underwater option. Employees at companies acquired below the strike price routinely discover that their options are worth precisely nothing and that this is the normal, contractual outcome. An option is a right to buy at a fixed price. If the company sells below that price, the right has no value and the agreement says so.

The third trap is waiting for a summary. Press coverage reports the per-share price. The treatment of employee awards is in the merger agreement, filed as an exhibit, and it is written in plain terms once you find the right section. That is where you look, and you can look the day it is signed rather than waiting to be told.

You've now followed equity from grant to vest to dilution to the two events that end it. The skill is the same throughout. Find the document. Read the terms. Do the arithmetic yourself.