Project Thunder has now been approved on the New York Stock Exchange as Cloudera (CLDR), but the numbers are less than compelling. After raising capital in 2014 at a $4.1 billion valuation, with Intel buying shares at $30.92, most would not have predicted an IPO in 2017 with a projected price range of $12-$14 per share. However, that is where we are and Cloudera plans to sell 15 million shares in an upcoming IPO.
This lower valuation begs the question if you’re a option or stock holder: “What should I be doing with my equity?”.
Well, this is a tricky one. In a traditional scenario an IPO would lead to an increased valuation.
Let’s review a few scenarios:
I Exercised My Cloudera Options when the Value was Higher and Paid AMT (Tax)
You have an option price of $1 and the 409(a) Fair Market Value (FMV) when you exercised your ISO’s was $25 per share. Therefore, when you exercised you paid Alternative Minimum Tax (AMT) on the difference of $24. Well, now if the IPO goes to $14 and I sell these shares, assuming they have been held one-year from when they were exercised and two-years from the grant date, the following would result:
Long-term capital gain for income tax purposes = $13/share ($14-$1)
Long-term capital LOSS for AMT purposes = $11/share ($25-$14)
Here is the tricky part – capital losses are limited to a NET $3,000 each year and are calculated separately for “regular” tax and AMT. You could end up having to pay capital gain tax on the $13/share gain, and be limited to deducting the AMT loss to $3,000. Simply put, you need to review this scenario in detail and understand the true tax consequences before selling shares.
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I Have Cloudera RSU’s that Vested at a Higher Share Price
Let’s consider the same example as above. If you have RSU’s that vested at $25/share – you have paid tax on those and there is no difference between regular tax and AMT. Therefore, if you sell the shares, you will be able to deduct a NET capital loss of $3,000. So, if you have other equity at a gain from earlier grants/exercises, this is a perfect opportunity to offset gains with losses and save tax dollars in the process.
I Have A Ton of Vested and Unexercised ISO’s and NSO’s at Cloudera
Congratulations for having a ton of options! I’m sure you’ve earned them. Also, be thankful you didn’t exercise at a higher share price. With that said, how you proceed in this example will be dictated by your goals and plans. Typically, it makes sense to define what you care about and work backwards into a tax-efficient plan. Consistent with the previous numbers, here are some high level insights:
ISO’s – If your exercise price is $1 per share and the value is $14, you will pay AMT on the variance of $13 in most cases.
NSO’s – when you exercise the difference of $13 immediately becomes ordinary income, so this type of equity may make sense to exercise and sell immediately and use the proceeds to meet goals and re-invest into a tax-efficient plan with the ISO’s
With that said, much of your plan is goal-oriented, but it also depends on your view of the long-term price of the stock and where it may ultimately land. Because nobody has a crystal ball, we recommend meeting major goals first and then stepping back and determining the appropriate level of risk to take in the long-term equity of Cloudera.
Let’s make a plan together, Contact us today
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