The Basics of a Tender Offer

A tender offer is a situation in which an individual or a company offers to purchase a large number of shares in a public corporation from the shareholders. This is done in an attempt to take over the company. A tender offer can be endorsed by the company itself, or it can come in the form of a hostile takeover. Here are a few things to consider about the tender offer and how it works.

Tender Offer

When an individual investor wants to take over majority ownership of a company, one of the methods that they can use is a tender offer. With this process, the potential buyer will provide a notice to the shareholders of a company that states they are willing to buy their shares. Typically, the investor will do this through a public forum, such as through a newspaper ad or an ad in a financial publication.

Financial Incentive

In order to attract more sellers, the individual investor will provide them with a financial incentive. In most cases, they will offer to buy the stock for a higher price than what is available in the market currently. This will often attract a large number of shareholders and it will entice them to sell their shares to the investor.

Maximum and Minimum Requirements

Typically, in order for a tender offer to go through, the investor will include maximum and minimum requirements. This means that unless they get more than a minimum amount of shares, the tender offer will not take place. They will also typically put a maximum amount of shares that they are willing to purchase. For example, they might offer a specific price per share as long as they can get at least 51 percent of the available shares in the company. They will also say that they are not willing to take more than 60 percent of the outstanding shares in the company. This makes it a first-come first-served mentality when dealing with a tender offer.

SEC

When a tender offer takes place, the investor has to provide information to the SEC. Anytime that over five percent of the outstanding stock in a company will be purchased by an individual investor, that investor has to provide disclosures to the SEC. This allows the SEC to govern the transaction and to make sure that there is nothing underhanded taking place.

Friendly or Hostile Takeover

This type of transaction can take place in a variety of contexts. In some cases, the investor may have the full blessing of the Board of Directors in taking over the company. In other cases, this may be a hostile takeover bid. An investor may believe that they can improve the operations of the company they want to take over. This investor might have the idea of putting a new management team in place in order to make it more efficient, and then becoming more profitable. After the company has been turned around, the investor might sell the shares at a large profit.

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