Tender Offers

A tender offer is a public offer designed to convince the target's shareholders to sell their shares to the acquirer at a predetermined price and within a given time frame, subject to various conditions specified in the offer. The offer achieves its goals if the shareholders who accept it represent a sufficiently high ownership percentage to grant the acquirer control of the target. Effective control does not always require a 50% holding. On the other hand, in order to be able to coerce the minority into selling its shares in order to gain full control, it is necessary to hold 90% of the shares after the tender offer. Consummating a tender offer, as opposed to consummating a merger, does not entail the abolition of the legal existence of the company whose shares are being sold.

A tender offer is distinguishable from a merger and an acquisition of assets in that it does not require the approval of the target's organs; it is not based on negotiations between the managements of the two companies. That is, a tender offer can therefore be hostile to the interests of the target's management. On the other hand, the management's opposition to the tender offer can compromise the success of the acquisition of control.

The cordial nature of mergers enables the acquirer to execute the deal with a higher degree of certainty not only with regard to its consummation, but also with regard to its details. An acquirer which follows the path of a merger usually enjoys access to the target's internal reports, and the determination of the price is made in a more informed manner.

A tender offer entails the risk that even if it succeeds, the acquirer will nevertheless have to manage the company it controls while taking the minority shareholders into consideration, which can result in public and legal exposure through claims by a troublemaking minority.

In a merger, which is performed through negotiations between the managements, the acquisition initiative can be kept secret from the public for a long period of time, thus reducing the possibility of the development of a bid contest for the shares by the submission of competing tender offers.

There are two reasons why an acquirer might choose to pursue a tender offer: first, when the seller's management disagrees or is expected to disagree with the terms of the merger; second, when the acquirer estimates that the goals guiding it would be better achieved by acquiring effective control of the company, even if such control is not full.

Indeed, the majority of tender offers end with significantly less than 100% of the target's shareholders selling their shares. In many cases, the next stage is a merger between the target and the acquirer, which puts pressure on shareholders to sell their shares. If more than 90% of the target's shares are held by the acquirer, the company does not need the target's shareholders' approval for the merger. However, the acquirer still needs to take into account any domestic laws pertaining to the fair treatment of minority shareholders.

In the United States, tender offers are subject to an intricate set of legal rules promulgated under the Williams Act, which is part of the Securities Exchange Act of 1934. Tender offers are almost always applicable only to traded companies and have no practical application with regard to private companies (due to the many restrictions imposed on share transfers in private companies), and therefore this book does not discuss the numerous legal rules governing tender offers.



From Concept to Wall Street(c) A Complete Guide to Entrepreneurship and Venture Capital
From Concept to Wall Street: A Complete Guide to Entrepreneurship and Venture Capital
ISBN: 0130348031
EAN: 2147483647
Year: 2005
Pages: 131

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