I found this - an answer to the question, but it seems it might depend on any t/o offer on the table. If anyone can shed any other perspective that would be appreciated.
Yes I may be getting ahead of myself, but given the issue has been raised, I was curious to find out.
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http://answers.google.com/answers/threadview/id/455330.html
Hi dazedandcallfused,
When there is a merger or takeover, options on the stock of the acquired company are adjusted according to the terms of the deal. With a call option, your right to buy the stock is converted to a right to buy a corresponding quantity of whatever shareholders receive for their stock.
Say you have options to buy ABC stock and XYZ acquires ABC. Whatever deal ABC's shareholders get carries over to your options. Forexample, if you had an option to buy a share of ABC for $1 and thetakeover deal was that every ABC share is exchanged for two shares ofXYZ, after the takeover, you would have an option to buy two shares of
XYZ for $1.
If the transaction between the companies is more complicated (e.g., acombination of stock and cash), what happens to the option will becorrespondingly more complicated. But in any case, the exchange where
the option is traded should publish what is going to happen to theoptions before it actually happens.
This is just the general principle. For more details, see thefollowing references.
Detailed explanation by Frederic Ruffy on Yahoo! Finance
http://biz.yahoo.com/opt/041213/8d5111051ca245d1e132c78748f25db5_1.html
FAQs on splits, mergers, and spinoffs from the Options Industry Council
http://www.888options.com/faq/mergers.jsp
E*TRADE Options FAQ on splits, mergers, spinoffs & bankruptcies
https://us.etrade.com/e/t/kc/oic?id=50015
FAQ answer from the Montréal Exchange
http://www.m-x.ca/invest_particulier_faq_en.php#merger
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