When Apollo Global Management acquires Shutterfly, Inc., what is going to happen to my Restricted Stock Units that have vested and become shares and my unvested RSUs?
Many employees of Shutterfly have received grants of Restricted Stock Units (RSUs) and are curious what will happen to their RSUs and the company stock they already own.
First, a quick clarification; when RSUs vest, they are exchanged for shares of stock, so there is technically no such thing as a vested RSU. You have unvested RSUs and shares of company stock that came from RSUs when they vested. You can read here for more information on how RSUs work.
When RSUs vest, the default process is sell shares to cover the taxes owed at the time of vesting. This establishes the cost basis and date for the remaining shares held. There will be a final shareholders vote to approve the transaction in early September, which will then be expected to close by early Q4 2019. We will be comparing date of vest and cost basis for shares to the close of the transaction and $51.00 per share.
For shares that vested prior to Q4 2018, these shares will receive long-term capital gain/loss treatment. A quick glance at Shutterfly’s stock price over the last few years indicates that most shares will have a basis in the $36-$53 range until January 2018. Long-term shares with a basis date prior to January 2018 will probably have a small gain or loss [on a per share basis]. For RSUs that vested between January 2018 and October 2018, there will likely be a long term capital loss, which will offset some or all of the gain from RSUs vesting prior to January 2018.
For shares that vested after Q4 2018 and before the transaction is closed in early Q4 2019, these will be short-term capital gains and taxed at your ordinary income rates. These shares probably have a gain and you won’t get a choice to hold them until they reach long term status.
Shares that are already owned, may or may not have taxes withheld to cover capital gains taxes. After the transaction closes and you receive cash proceeds for your shares of stock, estimate your capital gain and additional tax liability. Set aside cash in a savings account to cover this tax bill in spring 2020.
For RSUs that have not vested as of the transaction Effective Date, in terms of the taxes, these will work very similarly to the current RSU vesting with all shares guaranteed a $51 sales price and immediately sold at $51.00. You will owe ordinary income taxes on the value of the shares as they vest ($51.00 x number of shares vesting) and this will be added to your W-2 income. Shutterfly will withhold for taxes at the same rate they have been withholding previously.
For RSUs that vest in 2019 after the Effective Date, the payout will maintain the original vesting date.
All RSUs that vest in 2020 will pay out on January 1, 2020. This will feel like a large cash bonus in addition to your normal bonus structure.
All RSUs that vest in 2021 will pay out on January 1, 2021.
Any RSUs that vest 2022 or later will pay out on July 1, 2021.
What are some of your planning options?
Even though this acquisition may be liquidating your shares and RSUs before you planned, you still have some options to prepare.
Log in to E*Trade and download all the Expanded Details of your RSUs. This will show you the vesting date, basis, and number of shares for every grant. Both shares that have already vested and had taxes withheld and the future vesting schedule for current RSUs. There’s a lot of information, so it’s a big spreadsheet.
E* Trade > Stock Plan (SFLY) > Holdings > Download > Download Expanded
With this data, you can now estimate what your additional income will be and whether it is long-term capital gain/loss, short-term cain/loss or ordinary income (W-2).
Capital losses can offset capital gains. Then any additional losses can only be deducted against ordinary income up to $3,000 per year. Net capital losses greater than $3,000 can be carried forward to future years.
If you have a gain you don’t want to pay taxes on, do you have other investments you could sell at a loss to offset?
If you have a loss, are there any outside gains or unrealized gains you could realize. You can harvest gains where you sell another investment, your SFLY loss can offset the capital gain and then you can buy another investment, or even the same investment, establishing a new higher basis.
Were you already planning on making donations to charity?
If you regularly donate to qualified charities or were planning on donating to charity, instead of donating cash, consider donating appreciated stock. The charity receives the full value of the stock and you receive a tax deduction based on the full value. But you don’t need to pay capital gains taxes. When the qualified charity sells the stock, they don’t pay capital gains taxes.
The key is that this needs to occur before the shareholder vote approving the transaction in early September.
If time and logistics are an issue, you can also donate the stock to a Donor Advised Fund and decide which charity will receive your generosity at a later date. This allows you to make the time sensitive donation without the stress of coordinating with a specific charity so urgently.
After the transaction is completed in early Q4 2019.
Look through the transactions. The unvested RSUs being paid out in cash will probably have taxes withheld, but depending on the rest of your situation, it may or may not be enough. The shares being liquidated may not have taxes withheld at all.
If your total withholdings are likely to be insufficient, set the money aside in cash, such as a savings account, for a few months until you file your taxes in spring 2020.
Do not spend or reinvest the money that is going to cover your additional tax liability.
For the rest of the proceeds, plan out how much should be reinvested for future goals. This was already money invested and growing for you. There may be an opportunity to spend this extra cash, but you are more likely to maintain a disciplined investment strategy if you reinvest immediately (or at least immediately after you know your tax liability).
Would you like to figure out how this applies to you individually?
Do you have any other questions regarding RSUs, taxes or investments?
Feel free to contact me.
Aaron Agte, CFP®, founder of Graystone Advisor, is a fee-only Financial Planner located in Foster City, CA, serving clients virtually in the Bay Area and across the country. He specializes in helping couples with stock options, RSUs, and other equity compensation.
@AaronAgteCFP