While there may be slightly different ways to define a corporate “tender offer,” one basically takes place when a party makes an offer to the shareholders of a corporation to allow them to exchange their shares for other securities or a cash price that's higher than their current market price. These types of offers are frequently made the midst of a hostile takeover attempt.
The reason such a takeover is deemed “hostile” is because the corporation's management opposes it. There are more than a half-dozen factors usually involved when a “tender offer” is being made. A number of those factors are set forth below.
Factors Frequently Present When a Tender Offer Is Being Made
A very widespread solicitation is being made of all public shareholders. This effort is done to convince them that selling their shares (or exchanging them for new securities) is in their best interest – despite what the corporation's management may be claiming to the contrary;
A very high or premium price is being offered by the potential buyer;
Either a majority of the corporation’s stock is being sought – or at least a very substantial percentage of it;
The offer is not one that can be satisfied by only a limited response from the contacted shareholders. In other words, the takeover bid will only be fully consummated if a set percentage of the shareholders make a positive response to bid;
Bids to take over corporate shares – or true “tender offers” -- are normally put forth for a limited, stated period of time. If enough shareholders fail to respond as requested within the stated timeframe, the offer states that it will end;
There will normally be a public announcement made by the potential buyer, stating that he/she (or a corporate entity) will soon be acquiring the requested shares. Of course, if the buyer’s stated minimum number of shares are not offered, the bid can still fail. In other words, the “tender offer” is a very firm one – not usually open to any type of flexibility or negotiation
When any of these various factors noted above are absent, there is usually no true “tender offer” being made. Should only a few of these factors be involved, then there is simply an attempt being made to buy a large amount of stock.
If a true “tender offer” is consummated, the successful bidder must comply with a wide variety of SEC (Securities and Exchange Commission) rules and regulations.
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