What is a Tender Offer?

Tender offers are attempts to secure outstanding shares of stock associated with a given company by means other than purchasing the shares on the open market. The tender offer usually involves approaching a current shareholder and making an offer for all or part of the held shares. In order to make the tender offer attractive, the purchase price is usually above current market value.

The use of a tender offer is a common approach when an individual or entity is initiating a takeover bid. Takeover bids may be conducted for a number of reasons. There may be an interest in acquiring a profitable company and bringing it into a conglomeration as part of a growth strategy. At the same time, the takeover may be a way to gain control of the assets of the company with an eye toward systematically dismantling the operation and selling off the various assets individually for a profit.

In order to make the tender offer attractive to current shareholders, the price offered per unit of stock is usually above the current market value that would be realized in usual trading. It is not unusual for the tender offer to also consider the fluctuation in price that is projected over the short term. By taking both these factors into consideration, it may be possible to gain the attention of enough shareholders to gain controlling interest in a relatively short period of time.

Making use of a tender offer tends to begin with discreet inquiries until the investor has accumulated enough shares that it becomes necessary to disclose his or her intentions. Normally this takes place through the government agency that has jurisdiction over the transactions. Through the government agency, the investor issuing the tender offers has to report total holdings in the target company to the agency, the company proper, and the exchange where the shares of the corporation are normally traded. Various governments set a specific percentage of outstanding shares as a benchmark where this action must take place.

However, the use of the tender offer will not cease after making the proper reports through the government agency. Often, the offers will move forward at a more aggressive pace, as the company is likely to begin taking steps to prevent the acquisition of additional shares. At this juncture, the tender offer may be increased, making it harder for current shareholders to resist.