What is tender?
A tender is a public offer of money or services made to win a contract. The process of tendering is usually undertaken by governments and financial institutions to invite bids for projects from contractors. Tender also refers to an offer made by a company or third party to buy all or a substantial percentage of a company’s stock from shareholders within a given timeframe.
How tender works
Let’s define tender in reference to contracting. Governments and institutions have a well-defined process to accept, evaluate and select vendors bidding to win contracts to a project or procurement.
For example in the US, federal contractors and businesses can find contract opportunities to provide goods and services to the government for various industries such as engineering, construction, technology and procurement. The US General Services Administration (GSA) is the acquisition and procurement arm of the US federal government.
Examples of tender in business
A tender definition in terms of mergers and acquisition of a corporation refers to an offer to buy securities of a company. A tender offer where a third party seeks to buy shares in a company is called a ‘third party tender offer’. Whereas, a tender offer where a company seeks to acquire its own shares is called an ‘issuer tender offer.’
Tender offers are made directly to each individual shareholder. They remain open for a limited period of time. There is a predetermined offer price to the tender offer. It’s fixed, but is usually offered at a premium to current market prices of the security. A tender offer may also have other terms and conditions related to tendering to a certain number of shares. An acquirer may also offer securities in another company in exchange for the target company’s shares to shareholders
For example, let's say a company’s stock is currently trading at $100 a share on the New York Stock Exchange. A suitor makes a tender offer to buy the company’s shares at $120, which represents a premium of 20% to the stock’s trading price, on a condition that at least 51% of the shareholders accept the tender offer.
In the US, tender offers are regulated by the US Securities and Exchange Commission (SEC) under the Williams Act.
According to the US SEC, a tender offer must include certain disclosure requirements, minimum offering periods, withdrawal rights, manner of publication and more. The acquirer must signal target stockholders by mailing of the offer or via placement of a “tombstone” ad in the national editions of the Wall Street Journal or The New York Times, said the US SEC. Furthermore, tender offers must be open for a minimum of 20 business days.