A tender offer is an offer from a firm or INVESTMENT group to buy shares of stock. In a tender offer, stockholders are usually offered a price above the stock’s current market price. This premium is used to induce SHAREHOLDERS to sell. A tender offer is a means for an outside group to take control of a company and can come in the form of a friendly or hostile takeover. In the case of a friendly takeover, MANAGEMENT and the BOARD OF DIRECTORS will recommend shareholders “tender” (sell) their shares to the group making the offer. In the case of a hostiletakeover attempt, companies often adopt a variety of strategies to prevent or eliminate the incentive for the takeover. These strategies include a variety of colorful terms such as “poison pills” (issuing new debt or preferred shares to make the company less attractive financially), a “bear hug” (where the terms are so attractive that a company’s board of directors is afraid not to accept the offer), and “cram-down” deals (where an unattractive tender offer is made, but the company being acquired has no other alternatives). The SECURITIES AND EXCHANGE COMMISSION (SEC) requires any corporate “suitor” who accumulates 5 percent or more of the shares of a target company to disclose its holdings to the SEC, the target company, and the stock exchange where the shares are traded.
See also POISON-PILL STRATEGIES.