Tender Offer
What Is a Tender Offer?
A tender offer is a public proposal by an individual or company to purchase shares of another company directly from its shareholders, typically at a specified price and within a limited time period.
Tender offers are often used during takeover attempts or acquisition efforts.
Why It Matters
Tender offers give investors an opportunity to sell their shares at a predetermined price, which is often higher than the current market price. This premium is designed to encourage shareholders to sell their shares to the acquiring company.
Tender offers can signal significant corporate changes such as mergers, acquisitions, or attempts to gain control of a company.
How Tender Offers Work
During a tender offer:
- the acquiring party publicly announces the offer
- shareholders decide whether to sell their shares
- the offer price is often above market value
- the offer remains open for a specific period
If enough shareholders accept the offer, the acquiring company may gain control of the target company.
Example
A large corporation offers to buy shares of a smaller competitor at $50 per share when the stock is currently trading at $40. Shareholders may accept the offer and sell their shares.
Tender Offer vs Merger
- A tender offer involves purchasing shares directly from shareholders.
- A merger combines companies through corporate agreement and integration.
FAQs About Tender Offers
Why are tender offers usually above market price?
To encourage shareholders to sell their shares.
Do shareholders have to accept a tender offer?
No. They may choose to keep their shares.
Who makes tender offers?
Companies, investors, or acquiring firms seeking control.
Related Terms
