RE: Thats sneaky...10 Jun 2020 13:56
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How a Tender Offer Works
A tender offer often occurs when an investor proposes buying shares from every shareholder of a publicly traded company for a certain price at a certain time. The investor normally offers a higher price per share than the company’s stock price, providing shareholders a greater incentive to sell their shares.
Most tender offers are made at a specified price that represents a significant premium over the current stock share price. A tender offer might, for instance, be made to purchase outstanding stock shares for $18 a share when the current market price is only $15 a share. The reason for offering the premium is to induce a large number of shareholders to sell their shares. In the case of a takeover attempt, the tender may be conditional on the prospective buyer being able to obtain a certain amount of shares, such as a sufficient number of shares to constitute a controlling interest in the company.
A publicly traded company issues a tender offer with the intent to buy back its own outstanding securities. Sometimes, a privately or publicly traded company executes a tender offer directly to shareholders without the board of directors’ (BOD) consent, resulting in a hostile takeover. Acquirers include hedge funds, private equity firms, management-led investor groups, and other companies. The day after the announcement, a target company’s shares trade below or at a discount to the offer price, which is attributed to the uncertainty of and time needed for the offer. As the closing date nears and issues are resolved, the spread typically narrows.
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