What is a Tender Offer?

A tender offer is one type of public takeover bid. Normally, the tender is a public open offer by a prospective acquiring company to the shareholders of the target corporation. 

The tender offer invites shareholders to sell their shares for a specified price, within a particular period of time (usually 20 business days). The price offered is normally higher than the market price, though it’s often contingent upon a certain minimum or maximum of sales being reached. For instance, the prospective buyer may want to obtain a sufficient number of shares to have a controlling interest in the company.

Can a tender offer be used for a hostile takeover?

Yes, a company can acquire another company in a hostile takeover by making a tender offer that appeals to a sufficient number of shareholders. However, it’s an expensive way to carry out a hostile takeover and can be time-consuming.

Are tender offers legal?

Tender offers are legal but often regulated. For instance, in the US, tender offers are regulated by the Williams Act. This sets out rules about the minimum length of time a tender offer must remain open, whether one class of shareholders can obtain preferential treatment, and more. The tender offer must be filed on a Schedule TO with the SEC.

What is a mini-tender offer?

A mini-tender offer is when an investor attempts to acquire less than 5% of issued stock. This doesn’t need to be filed on a Schedule TO with the SEC.

What are the pros and cons of a tender offer?

Tender offers have a number of advantages and disadvantages for investors.


Advantages:

  • A tender offer can lead to a merger or acquisition taking place quickly.
  • The target company’s directors don’t need to be in agreement, so long as enough shareholders can be convinced to sell.
  • Shareholders receive a fixed, above-market price for their shares.
  • Tender offers can allow the monetization of otherwise illiquid equity.
  • The acquirer doesn’t have to buy until a set number of shares are tendered.

Disadvantages:

  • The tender offer can end up becoming expensive if it drags on or if other potential investors become involved in a hostile takeover bid.
  • Shareholders may be indecisive and the tender offer may fail.

A tender offer is a legal and often regulated type of public takeover bid. They have numerous advantages and disadvantages for investors that are worth keeping in mind.