We knew there had to be something evil when Microsoft was involved but in this story of the purchase of Skype it isn't actually the Evil Empire of Redmond, at least not according to Reuters journo Felix Salmon. He's branded Silver Lake, the seller, as being evil, rather than Ballmer's Ball Boys*. It's an issue of semantics. The …
...if they can buy back the shares at the original price even after you have left the company they are not really shares are they, Just some kind of elaborate loan.
Socialism is so much more fun when it's being cemented by lawyers.
Skype may have the "right" to repurchase but if the holder of the vested shares isn't selling, they can just eff off. Or am I confused somehow?
Vesting versus exercising...
Blatant factual error.
A share option (OK, one granted by a company to its employee as a form of additional pay - there are other types) has a period of time where all the employee can do with it is hold it. At the end of this time, the option 'vests' or 'is vested', depending on who you ask. This does not mean that the employee is forced to take the shares at this point. It simply means that the employee is now allowed to"exercise" the option. To use the option to buy the relevant number of shares is to exercise it, and this is a strictly optional activity. Indeed, that's why it is called an option - when the option vests, you have the option to exercise it.
Why would you not exercise an option? The option will have a price attached, called the strike price. This is the price that you must pay to buy the shares using the option. If at the time your option vests, the market price is above the strike price, you win, because you can immediately sell the shares for a zero-risk profit. If the market price is lower than the strike price, you don't exercise the option, because it would be cheaper to just go to the market and buy the shares.
US tax law and stock options
In the US, there is a reason to purchase / exercise your shares at the strike price, even if it is at or below market value -- or the company is not yet on the market.
Under US Tax law you are taxed on the unrealized gain at the time you exercise options. I.e. if the option is valued at 7 cents a share, and the company says they are worth 10 cents. You immediately pay income tax of 3 cents per share -- even though you have no actual gain. So if the shares are worth the strike price or less, it may make sense to gamble they'll be worth something and purchase them to avoid the unrealized gain tax.
Secondarily under US Tax law, if you hold shares -- not options -- for greater then 2 years, the tax rate is substantially reduced. It's fairly common practice for people to exercise some or all of their shares as they vest in order to start the 2 year "clock". Gambling that the shares will be worth more then you paid when you can finally sell them can be a fairly significant tax advantage.
(Of course this is all gambling.. as my 15,000 shares that I had with a former employer became worth $0 when they sold themselves. They simply wrote in the contract that common shares had a value of 0, while preferred had a different value. Convenient that...)
However, if the company is not listed/traded (i.e. private equity)
There is no option to buy from the market.
In this situation you need to ask yourself do you feel lucky?
Sorry couldn't resist...
Think this a series of misunderstandings here.
As someone has pointed out the term "vested" just means that the options become available to be exercised ... from what the article says this was a share option scheme ... there can be share schemes where, when elements of the scheme vests then you get the shares however this appears to be an option scheme.
As for the "repurchase" of options then I think this just means that at the point of purchase by Microsoft then anyone holding options get paid out for those shares at the price per share the Microsoft were paying instead of being left with a tiny minority stake that would have no value.
They were only playing leapfrog
(to the tune of John Brown's body)
One rapacious money grabbing corporate type jumped right over an other rapacious money grabbing corporate type's back.
Stop blaming the venture capital
It may not be necessarily Silver Lake here.
Question No 1: Which country did Skype CEO come from?
Question No 2: Has anyone in that country ever seen anything on his so called "stock options" without at the very least threatening a tactical law-nuke - I have not. 4th company and 10 years since I am here I carefully observe how each sale in the particular country Skype CEO came from has been specially designed to ensure that no options vest or vested options are absolutely and totally worthless.
The people who look at life through Silly Valley pink tainted glasses should come over here for a change and see what real life on a real salary means.
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