Company in talks over sale

A component production company is in talks with a competitor business for a sale of the company.

The sale price, subject to due diligence, will likely be comprised of cash and a small earn-out element.

In anticipation of a sale, the company wishes to grant EMI options over 10% of the (fully diluted) share capital to its employees.

The likely sale proceeds are not known but the range equates to £20 to £22 per share – on a pro rata basis.

In the light of the impending sale, it is reasonable to value the shares over which options will be granted to the employees by reference to the possible sale proceeds per share.

Depending on the level of risk, uncertainty over the final amounts payable and also the timing, it might be reasonable to apply a discount in the range of 15% to 30% indicating a share value of around £14 to £18 per share for the EMI options. It will depend on the specific circumstances of the company as to whether a differential is required between the AMV and UMV.

Note: A sale may affect a company’s qualifying status for EMI under Sch. 5 Para 9(3) ITEPA 2003. For further guidance see the Employee Share Schemes User Guide Manual at ESSUM52100.