Business, Legal & Accounting Glossary
Tender offer is a term typically used in corporate finance to mean a public, open offer by an entity to buy stock from the existing stockholders of a publicly traded corporation under specific terms in effect for a specific period. In the United States, tender offers are regulated by the Williams Act.
In a tender offer, the stockholders of the targeted company are asked to tender or surrender their stock holdings for a stated value (usually higher than the current market price or at premium) subject to the tendering of a minimum and maximum number of shares. For instance, if a corporation’s stock were trading at a value of $1/share, an acquirer might offer $1.15/share to its shareholders on the condition that 51% of shareholders agree.
A tender offer is an offer to purchase a block of company stock. It can be a kind of takeover bid for a public company.
In a tender offer, a bidder offers to purchase outstanding shares directly from the current shareholders at a stated price. The goal can be to accumulate enough shares to gain a controlling stake in the business. A company can also use a tender offer to buy back a block of stock. It can be a way to offer surplus cash to shareholders.
To convince shareholders to part with their shares, they are usually offered a premium over the current market price of those shares. However, the offer can be conditional on enough shareholders agreeing to sell to provide a controlling stake in the business. The offer can also be oversubscribed, meaning shareholders tendered more shares than the offering company wishes to buy. Usually, that results in partial acceptance of the shares tendered.
The tender offer is optional. Do you want to tender your shares (ie accept the offer) or keep yours for later appreciation?
Do you have tax considerations? Is this in a tax-protected account? Or taxable? And if taxable, are your shares long term or not?
Accepting the offer is usually a good idea unless you have a good reason not to. Shares may not reach the offered price again for several years. On the other hand, perhaps a bidding war will erupt and a better price will be offered later. What does management recommend?
Note if it’s a tender for all outstanding shares, the market price of the shares will usually rise to the offer price or near it. Selling on the open market is often preferable to tendering your shares. Selling gets you cash sooner, as time may be required to process shares tendered. The tender offer can be oversubscribed. Then they will take a percentage of your shares rather than all.
Whatever you decide, tell your broker (if your shares are held in street name) and they will take care of it. If you hold the certificates, usually your offer letter tells you to sign certificates on the back and mail them to a specified address. You will receive back a check for your shares accepted and a new certificate for any shares not accepted.
Some brokers are said to charge a service fee for tendering your shares. Many charge nothing. Investigate the fees involved before you decide. The commission to sell shares could be lower than the service fee. Tendering shares usually means selling them without paying a commission.
Controlling stake
Takeover bid
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This glossary post was last updated: 11th August, 2022 | 0 Views.