Definitions

in'tender

Tender offer

Tender offer is a corporate finance term denoting a type of takeover bid. The tender offer is a public, open offer (usually announced in a newspaper advertisement) by an acquirer to all stockholders of a publicly traded 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 tender offers, the bidder contacts shareholders directly, inviting them to sell their shares at an offer price. The directors of the company may or may not have endorsed the tender offer proposal. In the United States, tender offers are regulated by the Williams Act.

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 a value of $1/share, an acquirer might offer $1.15/share to its shareholders on the condition that 51% of shareholders agree. Cash or other securities may be offered to the target company's shareholders as consideration, although a tender offer in which securities are offered as consideration is generally referred to as an "exchange offer."

Rules

In the United States, SEC Regulation 14E 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 Act, codified in Section 13(d) and Section 14(d)(1) of the Securities Exchange Act of 1934, a bidder must file a Schedule TO with the SEC upon commencement of the tender offer. Among the matters required to be disclosed in the 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 submit a Schedule 13d filing within 10 days of acquiring more than 5% of the shares of another company.

Taxable Event

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.

See also

References



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