Scheme of Arrangement vs. Tender OfferHard
Two routes to owning all of a company. One asks a court and binds everybody; the other asks each holder and then squeezes out the rest.
3 min read · 453 words
The mechanism, in one line each
- Scheme of arrangement — the target proposes the transaction, holders vote, a court sanctions it, and every share transfers at once. The target runs it.
- Tender offer — the bidder offers to buy from each holder individually. Acceptances accumulate; once a statutory threshold is passed, the remainder can be squeezed out. The bidder runs it.
Side by side
| Scheme | Tender offer | |
|---|---|---|
| Who controls the process | The target | The bidder |
| Court involved | Yes — sanction is required | No, in the ordinary course |
| Threshold | Statutory majorities of those voting, by number and by value | Acceptances; then a squeeze-out threshold, commonly around nine tenths |
| Outcome | All or nothing, on one day | Can end with a majority stake and a minority left over |
| Timetable | Fixed by the court dates | Extendable by the bidder within the rules |
| Usable hostile? | No — it needs the target's cooperation | Yes |
Why a recommended deal usually chooses the scheme
Certainty. A scheme delivers a hundred per cent of the shares on a known date, which matters when the buyer needs full ownership to merge balance sheets, refinance debt, or squeeze out minority interests that would otherwise sit there for years.
The head-count requirement is the scheme's quirk: in some jurisdictions a majority in number of those voting is needed as well as a majority by value, so a large number of very small holders can matter more than their shareholding suggests.
Why a hostile bid cannot use it
A scheme is proposed by the target. A board that does not want to be bought will not propose one, which is why every hostile bid is a tender offer.
This also means a switch from one to the other, mid-process, is a piece of information: a bidder moving from scheme to offer is usually telling the market it no longer expects the board's cooperation.
What a minority holder can do
- Under a scheme — vote against, and appear at the court hearing to object. If the majorities are met and the court sanctions it, the shares transfer regardless.
- Under a tender offer — decline. That works until the squeeze-out threshold is reached, after which the shares are acquired compulsorily at the offer price. In some regimes a holder can also require the bidder to buy them out.
In practice, holding out rarely preserves the holding. It changes the date and, occasionally, gives access to an appraisal process.
The one non-negotiable
Both are creatures of the local companies act and takeover code. The thresholds, the head count and the appraisal rights differ by country, and a plan built on one jurisdiction's numbers does not travel. The M&A desk page sets out where the rules came from.