Tender Offer
A tender offer is a public invitation by a bidder to a company's shareholders to sell their shares at a stated price within a set period — the way a listed company is bought when its shares are held by thousands of people who cannot all sign a share purchase agreement. In private companies the same word describes an organised window in which employees may sell shares to an approved buyer.
- Also known as
- Takeover offer, Public offer, Public tender
- Used at
- acquisitions of listed companies (public offers); organised employee liquidity in large private companies (secondary tenders)
- Regulated
- by takeover rules — the UK Takeover Code, the SEC's tender offer rules, national regimes in the EU — which fix timetables, disclosure and equal treatment
- Conditions
- a minimum acceptance level (often 50% or 90%, the latter for a squeeze-out of the rest), regulatory approvals, no material adverse change
- Premium
- typically 20–40% over the undisturbed share price
- Parties
- the bidder, the target's board (which recommends or opposes), and every shareholder individually
How a tender offer works in practice
A bidder wants a listed payments company. It cannot buy it from a seller, because there are eleven thousand of them, so it makes an offer to all of them at once: €18 a share, in cash, open for the period the rules require, conditional on holders of at least 75% accepting and on the payments regulator approving the change of control. The board considers the price, takes advice, and recommends it — or does not, in which case the offer is hostile and the board's defences come into play. Each shareholder decides alone whether to tender.
The rules do most of the drafting. In the UK a bidder that announces a firm intention is bound to proceed; it must offer the same price to everyone and at least the highest price it paid for shares in the previous three months; the timetable runs to a fixed day count. In the United States the offer must stay open at least twenty business days and must be extended if its terms change. Reaching 90% or 95% lets the bidder compulsorily acquire the rest and delist the company; stopping between 50% and 90% leaves it with a listed subsidiary and minority shareholders, which is usually the worst outcome.
The private-company tender is the same mechanism without the regulation: a company with hundreds of employee shareholders arranges a buyer, a price and a window, and lets each holder decide. It is how the largest private fintechs give their staff liquidity without an exit.
Example
A European bank bids for a listed payments company at €18 a share in cash, a 32% premium to the undisturbed price, valuing the equity at €1.1bn. The offer is conditional on 75% acceptances and on approvals from the payments regulator and the competition authority. The board recommends. After the regulator's approval in week eleven, acceptances reach 91% on the final closing date; the bank compulsorily acquires the remaining 9%, delists the company, and the €18 becomes the reference price for the earn-outs the target's own recent acquisitions carried.
Common mistakes
- Announcing an offer before the financing is certain, which the UK rules treat as binding and the market as a promise. - A minimum acceptance condition of 50%, which wins control but not the company. - Forgetting the regulatory condition for a licensed target, and a timetable that does not fit the approval. - Paying more for shares in the market during the offer than the offer price, which raises the price for everyone. - Private companies running a tender at the last preferred-round price, and finding no buyer for ordinary shares at it.