What is a Tender Offer?

Usually in the UK when a company is planning to takeover another, a cash tender offer is made. This gives shareholders the option to accept the cash offer being made for their shares (the target company)  by the bidding company. To persuade shareholders to accept the offer, the bidding company usually offers a price slightly higher than the current market value.

Once the offer period has closed, all acceptances are added up, and if the bidding company has won enough shares, then the offer is declared a success – this is known as unconditional as to acceptances. After the offer is unconditional as to acceptances, and the legalities of the takeover are finalised, the offer is then declared unconditional in all respects. In the UK cash has to be paid out within 14 days of an offer being declared wholly unconditional.

Sometimes a company will just want to repurchase its own shares to reduce a cash flow, and these events are generally called “repurchase offers”. Some offers are on a “first come, first served” basis, meaning that the company will simply buy back its own shares until meeting its target. Sometimes a company will issue a Dutch Auction for its shares.

Dutch Actions / Dutch Tender Offers

In a Dutch Auction, a company again needs to reduce its cash flow, and does so by repurchasing its shares. However, rather than set a price, the company asked shareholders to bid for the tender. The company will set a maximum and minimum bid price, and also a bid interval rate. For example a company may announce that they wish to repurchase £1,000,000 of stock at a price between £10.00 and £11.00 at bid intervals of 10p. Once the market deadline has passed, the company will then add up all bids at £10.00, and then for each incremental bid rate, until it reaches £1,000,000. Once this price is calculated, it is referred to as the “strike price”. To be fair, the company will then repurchase all shares elected to tender at or below the strike price, at the value of the strike price. So shareholders electing low will receive the same payment as those electing at the strike price. Any shareholder electing to tender at higher than strike keeps their shares.

Your Options are Generally To:

  • Accept offer
  • Make a bid if it is a Dutch Auction / Dutch Tender
  • Take no action

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