What Is a Tender Offer?
A tender offer is a public bid to purchase some or all of a company's shares directly from its shareholders, bypassing the need for a negotiated merger agreement approved through a shareholder vote. The bidder announces a fixed price and a deadline, and shareholders individually decide whether to tender, meaning sell, their shares.
The offer price is nearly always set at a meaningful premium to the current trading price to give shareholders an incentive to sell. For example, if a stock trades at $40, a bidder might launch a tender offer at $52 per share, a 30% premium.
How a Tender Offer Works
Tender offers are typically conditioned on a minimum number of shares being tendered, often enough to give the bidder majority control, along with financing and regulatory conditions. If too few shareholders tender, the bidder can extend the deadline, raise the price, or walk away without buying anything.
In the United States, tender offers are regulated under the Williams Act, which requires public disclosure of the bidder's identity and intentions and keeps the offer open for a minimum period so shareholders can make an informed decision. These rules exist because tender offers put time pressure on shareholders and can be used as a takeover weapon.
Friendly vs. Hostile Uses
In friendly deals, a tender offer is often the first step of a two-step merger: the buyer tenders for a majority of shares with the board's support, then squeezes out remaining shareholders in a short back-end merger. This structure can close faster than a traditional one-step merger that requires a full shareholder meeting and vote.
In hostile situations, the tender offer is the classic tool for going around a board that refuses to negotiate, taking the premium directly to shareholders. Companies can also use a form of tender offer on themselves, called a self-tender, to buy back their own shares.
Why Tender Offers Matter in Banking
Bankers advising on tender offers help set the price, assess the likelihood that enough shares will be tendered, and plan responses if a target's board resists. On the target side, banks help boards evaluate whether the offer undervalues the company and whether to recommend that shareholders accept or reject it.
In interviews, tender offers most often come up when discussing hostile takeovers and the difference between one-step mergers and two-step tender offer structures.
