Tender Offers

Helping Employees Navigate Some Financial Implications of a Tender Offer

Private company employees who receive equity-based compensation often face a common challenge: how to turn their “paper wealth” into cash. If an IPO or acquisition is imminent, the transaction may unlock liquidity. But for companies that plan to stay private longer, a corporate-led liquidity event, such as a tender offer, may make sense.

A tender offer is a type of secondary transaction that allows holders of private company shares to sell some or all of their holdings back to the company or to outside investors at a predetermined price. The company establishes eligibility criteria and provides required disclosures eligible participants can review during a defined election period (typically 20 business days, as required by applicable law) to decide whether, and how much, they wish to sell.

 

Tender offers can support multiple goals: providing employee liquidity to bolster retention, bringing in new investors while limiting dilution and helping address issues like expiring options. A tender offer can also reinforce a culture of ownership by letting employees experience the real-world value of equity compensation.

 

The difference between a successful or confusing tender offer, however, often comes down to how well employees are supported before, during and after the transaction.

Why Employee Education Matters During a Tender Offer

Tender offers create liquidity, but they also introduce complexity. Employees commonly ask:
 

  • Who is eligible to participate?
  • How many shares can I sell?
  • How will the proceeds be taxed?
  • What should I do with the money after the transaction closes?

 

If these questions aren’t addressed, tender offers can unintentionally generate frustration, mistrust or decision paralysis, especially among employees experiencing their first liquidity event. Employers can’t (and shouldn’t) provide individualized tax or financial advice, but they can deliver high-quality education and resources that help employees make informed decisions.

Common Tender Offer “Confusion Points” and How Employers Can Help

While every tender offer is different, several topics consistently generate uncertainty. A thoughtful communication plan can help employees build confidence.

  1. 1
    Clarifying Eligibility Criteria

    The company determines eligibility, which can vary widely by transaction, including who can participate (e.g., employees, former employees or other holders), which equity awards or share classes are eligible to be sold and what portion of vested holdings may be sold—subject to a vesting cutoff date and, in most cases, an overall cap on the number of shares that can be tendered.

     

    What helps: Publish the “who/what/how much” in plain language early, then reinforce it through FAQs, info sessions and direct communications.

  2. 2
    Explaining Oversubscription and Potential Cutbacks (and Setting Expectations)

    A common source of disappointment is what happens if the offer is oversubscribed and elections are subject to cutbacks. Even if eligible participants elect to sell a certain amount, they may be able to sell only a portion if total demand exceeds available capacity.

     

    What helps: Clearly explain that elections may be scaled back, create a cutback methodology in advance (which may or may not be pro rata) and communicate the process and timeline so employees do not assume a full fill. After settlement, update employees on their final allocation and how that allocation was determined.

  3. 3
    Outlining the Tax Treatment (Without Giving Individual Advice)

    Tax implications can be a major source of anxiety. Depending on the equity type and transaction structure, proceeds may be taxed as ordinary income or short- or long-term capital gains, and employees may face withholding taxes or other complexities (especially in global programs).

     

    What helps: Provide a high-level tax information package and/or host educational sessions with tax professionals who can explain concepts and typical scenarios. Employees should be encouraged to consult their own tax advisors for personalized guidance.

  4. 4
    Addressing Concentration Risk and “What Now?” Decision Anxiety

    Employees with significant company equity often struggle with concentration: Should I sell to diversify? How much should I keep? What’s the tradeoff between reducing risk and keeping upside?

     

    What helps: Education that frames diversification and risk in general terms, plus access to resources or independent advisors who can help employees think through decisions in the context of their overall financial picture.

Supporting Employees After the Tender Offer Closes

A critical moment in the process is what happens immediately after the transaction. With cash (or updated holdings) in hand, employees may face decisions they’ve never had to make—how much to set aside for taxes and whether to pay down debt, build an emergency fund or invest for longer-term goals.

Helping Employees Prepare for the Tax Bill

Employees should be able to locate and understand the general taxation framework described in the offer documents and have a sense of whether proceeds could move them into a higher marginal bracket.

Practical Employer Support (Education-Focused):

  • A plain-English tax overview specific to the offer structure and equity types involved (without individual advice)
  • Optional Q&A sessions or office hours with a tax education provider
  • Reminders about forms, timelines and the importance of consulting a CPA for personal filings and planning

Planning for the Next Big Financial Event

Companies can reduce confusion by educating employees about equity mechanics well before any liquidity event, especially differences between incentive stock options (ISOs), non-qualified stock options (NSOs), restricted stock awards (RSAs) and restricted stock units (RSUs), and (for ISOs) topics like holding periods, exercise considerations and alternative minimum tax.

 

For many employees, a tender offer may be their first significant financial moment. Offering access to financial education resources or independent professionals can help employees translate a one-time payout into lasting financial value, while reinforcing that the company is invested in their long-term success.

Frequently Asked Questions

Education, not advice: explain how the tender offer works, key dates, what employees can expect and where to find resources and support.

Use general explanations and visual examples of how cutbacks work, without telling employees what they “should” do.

Financial education sessions, curated resources and access to independent advisors who can help employees make informed next-step decisions.

Learn how Morgan Stanley at Work helps employers design and execute tender offers.

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Disclosures:

This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.

Solium Capital ULC. is a wholly-owned subsidiary of Morgan Stanley.

Morgan Stanley at Work, Shareworks, Morgan Stanley Smith Barney LLC, and its affiliates and employees do not provide legal or tax advice. You should always consult with and rely on your own legal and/or tax advisors.

Morgan Stanley at Work services are provided by Morgan Stanley Smith Barney LLC, member SIPC, and/or its affiliates, all wholly owned subsidiaries of Morgan Stanley.

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