Tender offer

A tender offer is a public, broadly disseminated offer by a bidder to buy some or all of a company's shares directly from its shareholders, usually at a premium to the market price and subject to conditions (such as a minimum number of shares being tendered). Because it goes straight to shareholders, a tender offer can be used to pursue a hostile takeover over the objection of the target's board.

How it works

The bidder announces an offer price, the fraction of shares sought, an expiration date and conditions. Shareholders choose whether to "tender" their shares. If conditions are met, the bidder buys the tendered shares; if it acquires enough, it can gain control and often squeeze out remaining holders through a follow-on merger.

A cash tender offer pays cash; an exchange offer pays in the bidder's securities.

Regulation (United States)

Tender offers are regulated chiefly by the Williams Act (1968 amendments to the Securities Exchange Act) and SEC rules, which aim to protect shareholders and ensure fair, informed decisions. Key requirements include:

• the bidder must file disclosure (Schedule TO) and provide material information;
• the offer must stay open for a minimum period (generally at least 20 business days);
• all holders must be treated equally (the "all-holders" rule) and paid the best price;
• shareholders may withdraw tendered shares while the offer is open;
• a large stake-builder must disclose ownership (Schedule 13D) after crossing 5%.

Two-tier and coercive offers

Historically, two-tier offers paid a higher price for the shares needed to gain control and a lower price for the rest, pressuring shareholders to tender early. Such coercive structures helped drive the adoption of takeover defenses and regulatory protections.

Friendly use

Tender offers are not only hostile tools; many negotiated, friendly acquisitions of public companies are executed as tender offers because they can close faster than a long-form merger requiring a shareholder meeting.