Creeping tender offer

What is a creeping tender offer?

When a company gradually buys the shares of another company on the open market in order to acquire it.

This strategy is used instead of a tender offer, where a bid is made directly to the target company’s shareholders, to try and avoid a premium on the share price.

Where have you heard about creeping tender offers?

High profile creeping tender offers are often widely reported by the press. For example, in 2006, NASDAQ made a creeping tender offer for the London Stock Exchange (LSE).

This involved NASDAQ bulk buying shares in LSE over a number of months before instigating a hostile bid in December 2006 this was immediately rejected by LSE and then abandoned.

What you need to know about creeping tender offers.

Buying shares on the open market rather than directly from the shareholders means the buying company can often avoid paying a premium on shares.

It can also influence the target company's board of directors, as the buying company may be able to gain a seat on the board if they buy enough shares. This limits the opportunities of the target company, so the buying company is better placed to make a tender offer or go for a hostile takeover.

In the US a creeping tender offer is used to get around the Williams Act, which enforces certain conditions on public tender offers – for example that the same price is offered to all shareholders.