Tender offer
Encyclopedia
Tender offer is a corporate finance
term denoting a type of takeover
bid. The tender offer is a public, open offer or invitation (usually announced in a newspaper advertisement) by a prospective acquirer to all stockholders of a publicly traded
corporation
(the target corporation) to tender their stock for sale at a specified price during a specified time, subject to the tendering of a minimum and maximum number of shares. In a tender offer, the bidder contacts shareholders directly; the directors of the company may or may not have endorsed the tender offer proposal.
To induce the shareholders of the target company to sell, the acquirer's offer price usually includes a premium over the current market price of the target company's shares. For example, if a target corporation's stock were trading at $10 per share, an acquirer might offer $11.50 per share to shareholders on the condition that 51% of shareholders agree. Cash or securities may be offered to the target company's shareholders, although a tender offer in which securities are offered as consideration is generally referred to as an "exchange offer."
. SEC Regulation 14E also governs tender offers. It covers such matters as:
1. the minimum length of time a tender offer must remain open
2. procedures for modifying a tender offer after it has been issued
3. insider trading in the context of tender offers
4. whether one class of shareholders can receive preferential treatment over another
, codified in Section 13(d) and Section 14(d)(1) of the Securities Exchange Act of 1934
, a bidder must file schedule TO
with the SEC
upon commencement of the tender offer. Among the matters required to be disclosed in schedule TO are: (i) a term sheet which summarizes the material terms of the tender offer in plain English; (ii) the bidder's identity and background; and (iii) the bidder's history with the target company. In addition, a potential acquirer must file Schedule 13D
within 10 days of acquiring more than 5% of the shares of another company.
The consummation of a tender offer resulting in payment to the shareholder is a taxable event triggering capital gains
or losses, which may be long-term or short-term depending on the shareholder's holding period.
Corporate finance
Corporate finance is the area of finance dealing with monetary decisions that business enterprises make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize shareholder value while managing the firm's financial risks...
term denoting a type of takeover
Takeover
In business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...
bid. The tender offer is a public, open offer or invitation (usually announced in a newspaper advertisement) by a prospective acquirer to all stockholders of a publicly traded
Public company
This is not the same as a Government-owned corporation.A public company or publicly traded company is a limited liability company that offers its securities for sale to the general public, typically through a stock exchange, or through market makers operating in over the counter markets...
corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
(the target corporation) to tender their stock for sale at a specified price during a specified time, subject to the tendering of a minimum and maximum number of shares. In a tender offer, the bidder contacts shareholders directly; the directors of the company may or may not have endorsed the tender offer proposal.
To induce the shareholders of the target company to sell, the acquirer's offer price usually includes a premium over the current market price of the target company's shares. For example, if a target corporation's stock were trading at $10 per share, an acquirer might offer $11.50 per share to shareholders on the condition that 51% of shareholders agree. Cash or securities may be offered to the target company's shareholders, although a tender offer in which securities are offered as consideration is generally referred to as an "exchange offer."
General
In the United States, tender offers are regulated by the Williams ActWilliams Act
The Williams Act refers to amendments to the Securities Exchange Act of 1934 enacted in 1968 regarding tender offers. The legislation was proposed by Senator Harrison A. Williams of New Jersey....
. SEC Regulation 14E also governs tender offers. It covers such matters as:
1. the minimum length of time a tender offer must remain open
2. procedures for modifying a tender offer after it has been issued
3. insider trading in the context of tender offers
4. whether one class of shareholders can receive preferential treatment over another
Required disclosures
In the United States, under the Williams ActWilliams Act
The Williams Act refers to amendments to the Securities Exchange Act of 1934 enacted in 1968 regarding tender offers. The legislation was proposed by Senator Harrison A. Williams of New Jersey....
, codified in Section 13(d) and Section 14(d)(1) of the Securities Exchange Act of 1934
Securities Exchange Act of 1934
The Securities Exchange Act of 1934 , , codified at et seq., is a law governing the secondary trading of securities in the United States of America. It was a sweeping piece of legislation...
, a bidder must file schedule TO
Schedule TO
Under the Securities Exchange Act of 1934, parties who will own more than five percent of a class of the company’s securities after making a tender offer for securities registered under the Exchange Act must file a Schedule TO with the Securities and Exchange Commission...
with the SEC
United States Securities and Exchange Commission
The U.S. Securities and Exchange Commission is a federal agency which holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, the nation's stock and options exchanges, and other electronic securities markets in the United States...
upon commencement of the tender offer. Among the matters required to be disclosed in schedule TO are: (i) a term sheet which summarizes the material terms of the tender offer in plain English; (ii) the bidder's identity and background; and (iii) the bidder's history with the target company. In addition, a potential acquirer must file Schedule 13D
Schedule 13d
Schedule 13D is an SEC filing that must be submitted to the US Securities and Exchange Commission within 10 days, by anyone who acquires beneficial ownership of more than 5% of any class of publicly-traded securities in a public company...
within 10 days of acquiring more than 5% of the shares of another company.
Tax consequence
The consummation of a tender offer resulting in payment to the shareholder is a taxable event triggering capital gains
Capital gains tax in the United States
In the United States, individuals and corporations pay income tax on the net total of all their capital gains just as they do on other sorts of income. Capital gains are generally taxed at a preferential rate in comparison to ordinary income...
or losses, which may be long-term or short-term depending on the shareholder's holding period.
See also
- Bond exchange offerBond Exchange OfferAn exchange offer, in finance, is a form of tender offer, in which securities are offered as consideration instead of cash.In a bond exchange offer, bondholders may consensually exchange their existing bonds for another class of debt or equity securities. Companies will often seek to exchange...
- Mini-tender offerMini-tender offerA mini-tender offer is an offer to acquire a company's shares directly from current investors in an amount less than 5% of issued stock.-Subject to Only Some SEC Regulations:...
- Mergers and acquisitionsMergers and acquisitionsMergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or...
- Contract awardingContract awardingContract awarding is the method used during a procurement in order to evaluate the proposals taking part and award the relevant contract. Usually at this stage the eligibility of the proposals has been concluded...