Tender Offer

A tender offer is typically an active and widespread solicitation by a company or third party (often called the “bidder” or “offeror”) to purchase a substantial percentage of the company’s securities.  Bidders may conduct tender offers to acquire equity (common stock) in a particular company or debt issued by the company.  A tender offer where the company seeks to acquire its own securities is often referred to as an issuer tender offer.  A tender offer where a third party seeks to acquire another company’s securities is referred to as a third party tender offer.  

A tender offer is only open for a limited period of time and is made to each individual security holder.  That means each security holder can decide for him or herself whether to tender his or her securities.  In addition, the terms of the tender offer, such as the price offered to purchase securities, are fixed.  The purchase price is usually at a premium to the current market price of the securities in order to encourage security holders to sell their securities.  Sometimes a tender offer is conditioned on security holders tendering a minimum number or value of securities.  For example, if an offeror establishes a minimum tender condition of five million shares of a target company’s common stock, the offeror will have no obligation to purchase any shares if only 4 million shares are tendered.

Tender offers are regulated by the SEC, its rules and regulations, as well as the Exchange Act of 1934.  The SEC rules and regulations that apply to a tender offer depend on a number of factors. These factors include whether the tender offer is for equity or debt and whether the bidder is an issuer or a third party. If the tender offer is seeking equity securities, these factors also include whether such securities are “registered” pursuant to Section 12 of the Exchange Act or the issuer of such securities has another class of equity “registered” pursuant to Section 12 or is otherwise required to file periodic reports pursuant to Section 15(d) of the Exchange Act. 

All tender offers are subject to anti-fraud provisions and certain procedural requirements relating to how long the offer must remain open, how quickly holders must be paid for their tendered securities, and the conditions required in order for a bidder to extend an offer.  This includes tender offers that result in ownership of five percent or less of the outstanding shares – also known as "mini-tender offers." You can learn more about the risks of mini-tender offers by reading our information on that topic.

The vast majority of tender offers are subject to additional SEC rules and regulations and provisions of the Exchange Act.  These rules require bidders to file certain documents with the SEC that disclose important information about the bidders and the terms of the offer.  These documents include a Schedule TO and what is typically called an “Offer to Purchase” and can be found by looking up the target company’s name here.  Bidders are required to provide security holders notice of such tender offers. They will often provide such notice via newspaper advertisement or contacting security holders.  The rules also provide other protections to security holders.  These protections include: “withdrawal rights,” which is the right of security holders to withdraw their tender of securities within certain time periods; the requirement that the tender be open to all holders of the class of securities subject to the offer; and, the bidder’s obligation to provide each tendering holder with the “best price,” which means a bidder cannot offer different prices to different holders.