By: Andrew Rosen, CFP®, CEP® For over 40 years, Diversified has provided financial planning in Wilmington, Delaware. Fortunately, that has given us a heavy concentration of DuPont executive clients. Even though we’ve seen acquisitions and spinoffs through the years, each one is slightly different.   But, there are certain commonalities between them all.  With the looming Dow merger on August 31st, I thought this the perfect time to write this blog on what we’ve seen (as it pertains to stock and stock options) in the past. What we know:  The two companies are going to merge together, then split into three separate companies.  There will be casualties, as some divisions are sold off into other corporations.  Unless you are literally Ed Breen or Andrew Liveris, you may think you know your (or your groups) destiny.  Trust me, you don’t!   Prepare for the unexpected.  We also know if you are a stock holder, you will receive roughly a 1-1 trade in of your stock (either DuPont or Dow) into the new company DowDuPont. What is likely to happen:  This is where things get fun with your DuPont or Dow stock options (or restricted stock units).   In my experience, the options/units (assuming you move to one of the new companies) will then be converted to your new spinoff company stock/option in relatively equal weight.  For instance, let’s say you own one share at $80 of DowDuPont and you get moved to the Agriculture business.  To continue the example, let’s say that division’s market cap/value is $20/share.  You are then likely to receive four shares of crop protection to make up your $80. The risks:  If you own a restricted stock unit, your risk is limited to how the new company shares perform in equal correlation.  Thus, if the stock drops 5%, so does your value in their stock.  Additionally, with a restricted stock, once it vests you just own the underlining security.  That means you can wait for a rebound before selling. The big risk (and big return) is in the stock options.  Remember, when it comes to your stock options a 5% movement has a much larger than 5% effect on your value.  Additionally, your stock options generally come with an expiration date.  A good portion of our clients already own stock options which will expire in a few years.  When they spin into their new company, they aren’t likely to get an extended expiration date either.  The risk here is those options get spun into an underperforming company, and they go underwater and/or expire. The strategy:  Now we understand the known factors, the unknown factors, and the risks associated with your stock holdings.  It’s time to put a plan in place.  Don’t let emotions make the decision for you – that’s always a losing formula.  Rather, consider these six questions as part of your strategy:
  1. Appetite for risk?
  2. Need for risk?
  3. Years left until retirement?
  4. Amount of exposure compared to your other investments?
  5. Optics (if you are a senior executive)?
  6. Overall financial plan?
At the end of the day, most going through this will experience anxiety and uncertainty. It’s just part of change. We can’t control what DowDuPont does to your future.  However, with a well thought out plan, you can control how you handle your concentrated stock positions and how they can affect your overall financial plan. Remember, Diversified is always honored to help through these times (and more).    
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Andrew Rosen

In his role as Financial Planner, Andrew forges lifelong relationships with clients.  He coaches them through all stages of life and guides them to better achieve their life goals.  For more information about Andrew or the other firm partners, Kyle Hill and David Levy, click the link below.

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