What is a tender offer?
A tender offer is a type of takeover bid, when a potential buyer makes an offer to the shareholders of a publicly traded company to purchase the majority of shares in the firm. The offer is only for a limited time period and set at a specific price.
Where have you heard about tender offers?
Tender offers are often announced in the media, and are a key aspect of takeovers. A number of publicly traded companies have been acquired through tender offers, such as fast food giant Burger King, which was bought by private equity firm 3G Capital in 2010.
What you need to know about tender offers...
The price offered to shareholders in a tender offer is usually higher than the market price to give them more of an incentive to sell their shares.
For example, if a stock’s current price is £6 per share, the acquiring company might issue a tender offer for £8 per share on condition that at least 51% of shareholders agree to sell.
The bidder contacts shareholders directly as the directors of the target company might not have approved the proposal. Shareholders who refuse to tender their shares risk the price of the stock falling if the deal falls through.