Practical Law Glossary Item 9-382-3873 (Approx. 2 pages)
Glossary
Tender Offer (US)
A tender offer is one method of acquiring the stock of a public company. Although not defined in the rules and regulations of the Securities and Exchange Commission (SEC), it is widely understood that a "tender offer" is an offer to purchase some or all of a corporation's publicly traded stock directly from the company's stockholders with cash, the bidder's stock (known as an exchange offer), or a combination of cash and stock. By making a direct solicitation to a target company's stockholders to acquire their interests, a bidder can take a controlling position in a company if the stockholders owning a majority of the target company's outstanding shares agree to sell their stock, whether or not the target company's board recommends the acquisition.
Because it is highly improbable that all of a target company's stockholders will tender all of their stock to a bidder, a back-end merger is necessary as a second step (known as a two-step merger) to complete the acquisition of 100% of the target company.
Third-party tender offers are used to acquire companies in "friendly" (negotiated) deals and less commonly, in hostile acquisitions. A company can also launch an issuer tender offer (also known as a self-tender) to buy back its own stock to meet certain business objectives or as a defensive measure against a takeover.