What is a Tender Offer?

The term “tender offer” is used in corporate finance to describe a specific type of takeover bid. A tender offer is public, extended as an open invitation that will often be published in a newspaper advertisement. The offer is made from a prospective buyer to every one of the stockholders for a publicly traded target corporation. The offer is for the stockholders to provide their shares of stock for sale at an arranged price during a predetermined time. The proposed transactions may be required to tender a minimum and a maximum number of shares.

During a tender offer the shareholders are contacted directly by the bidding entity. In fact, it may be the case that the present owners and directors of the company have or have not supported the proposal of a tender offer.

In order to encourage the target company’s shareholders to sell, there is usually a financial bonus or premium attached to the details of the potential buyer’s offer price. The proposal may include an offer that is over the present market price of the shares. In the event that the stock for a target corporation was trading at a present cost of $12 per share, the potential buyer could boost the offer to $14 per share, as long as at least 51% of the shareholders are willing to sell.

Another method for enticing shareholders of a target company could be to offer cash or other securities. However, if there is a tender offer with securities offered as part of the potential deal, it is usually considered an “exchange offer.”

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