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HMRC internal manual

Shares and Assets Valuation Manual

Tax Advantaged Share Schemes: roll over provisions - CSOP, SAYE and EMI

Following a takeover it may not be practical for employees to hold options over shares in a company which has become a subsidiary.

The relevant legislation provides a facility to “roll over” tax advantaged options when a company is taken over by another company whose shares satisfy the appropriate legislation.

Number of shares

The relevant requirement is that the aggregate market value of shares under the old and the new options shall be equal at the time the rollover/exchange takes place. This fixes the number of shares under the new options.

The aggregate market value of shares under the old and the new options is a valuation matter on which SAV will nearly always need to be consulted. Again, many cases involve quoted companies and you should base the calculation on the agreed share for share exchange terms, for example, 2 Company B shares for every Company A share. Unless there are compelling reasons stick to this simple approach even if the quoted price of the shares in the two companies has diverged from the prices prevailing at the announcement. This approach should be used even where there are alternatives, such as cash or a mix of, say, cash, loan notes and shares. Only in the very rare case that the acquiring quoted company is paying wholly cash will you need to consider the example below (suitably amended). Multiple references to SAV can be avoided by companies arranging for all exchanges to take place on the same date or within a very limited period.

You can normally agree that the terms for the exchange can be based on the approach outlined above and that they will hold good for 21 days. Option holders can then be invited to exchange their options on those terms and within that period.

Example (Unquoted companies - cash offer)

Company A is taken over by company B for £1m.

The calculation to make is to show how many shares in B are equal to a share in A.

Company A has an issued share capital of 100,000, so its shares are worth £10 each.

Company B has an issued share capital of 1m, and is worth £10m (also £10 per share) immediately before the takeover.

However, an uninfluential minority in company B is worth £2.50 per share. You might therefore think that the adjustment for share options is 4 shares in company B for 1 share in company A.

However, because we have to do the comparison on a like for like basis we compare the undiscounted value of company B with the take-over price of company A and so the adjustment is 1 share in company B for 1 share in company A.

Exercise price

The relevant legislation requires that the aggregate exercise price payable by a participant under the new option must be equal to the aggregate exercise price under his/her old option. As the number of shares under the new option has been fixed, (see above) this enables the exercise price per share under the new option to be determined.


  Additional Guidance:SVM150000