Tender offer
Also known as: Contractual offer, Takeover bid
A price published to every shareholder at once. Whoever hands over their shares is bought; whoever does not, is not.
1 · SnapshotThe one idea to remember
2 · BeginnerWhat actually happens?
A tender offer is the simplest way to buy a listed company. The buyer publishes a price and an address. Any shareholder who wants that price sends in their shares. At the deadline, the buyer counts what arrived.
Nobody votes. There is no meeting and no court. Each owner decides alone, which is why the result is not known until the very end — and why most acceptances arrive in the last few days. A bid that looks like it is failing on Wednesday can pass on Friday.
Because each shareholder decides separately, the outcome can be partial. The buyer might end up with sixty per cent, or ninety. That is very different from a vote, where the answer is yes or no for everybody at once.
So the buyer sets a rule in advance: it will only go ahead if at least a stated share of the company is handed over. That level is a real decision. Set it high and the offer may fail. Set it low and the buyer may end up in control of a company with a large, unhappy minority it cannot remove.
- 1
Preparation2–5 wks
The price, the conditions and the minimum acceptance level are set, and the funding is confirmed.
- 2
Offer opens1 day
The offer document is published and the statutory acceptance period begins.
- 3
Acceptance period3–8 wks
Shareholders tender. Most acceptances arrive in the last few days, so an offer can look failed until it is not.
- 4
Extension1–2 wks
A further period lets holders who missed the deadline accept on the same terms once the outcome is known.
- 5
Settlementdays
Tendering shareholders are paid and the bidder registers its new holding.
Regulatory clearance to publish — The market regulator decides. The document has to say enough before it may be sent to anybody.
Minimum acceptance level — The bidder decides. Below it the bidder may walk away; waiving it means accepting a minority it did not want.
Who is on the deal
| Who | Side | What they are actually for |
|---|---|---|
| The bidder | Buy side | Publishes a price and waits to see how many shares are handed over. |
| The shareholders | Sell side | Decide one by one, which means the outcome is not known until the deadline passes. |
| The receiving agent | Neither | Collects acceptances and counts them, and is the reason the arithmetic is trusted. |
| The target's board | Sell side | Must publish a view on the offer even where it has no power to stop it. |
| The market regulator | Neither | Sets the minimum offer period and the rules on revising the price. |
- Desk
- Mergers & Acquisitions
- Offer is made to
- Each shareholder individually
- Binding when
- A shareholder accepts, not when the board agrees
- Typical period
- A statutory minimum of several weeks, often extended
- Can succeed
- Partially — the bidder may end up with a majority, not all
What decides whether it completes
Not how hard this is, and not a rating — there is deliberately no total. It says which of five blockers decides whether this transaction happens at all, in the same order on all 70 transaction types so they can be compared. This publication's own reading; see the notice below.
- Pricedecides it
- Financingmatters
- Approvalmatters
- Diligencebarely applies
- Executiondecides it
What decides it here. Nothing binds anybody until shareholders individually hand over their shares, so the price has to be high enough for each of them separately and the mechanics have to work for all of them at once. Most acceptances arrive in the last days, which makes the outcome unknowable until it is decided.
3 · IntermediateHow it runs in practice
The acceptance curve
Acceptances arrive in a hockey stick. Almost nothing comes in for weeks, then most of it in the final days. Three reasons, all rational:
- A shareholder who accepts early gives up the option of a higher competing bid for nothing.
- Custodians and nominees batch instructions, so retail acceptances reach the receiving agent late by construction.
- Arbitrage funds prefer to sell in the market rather than tender, and only tender when the market discount closes.
This is why an extension period exists: once the outcome is known, holders who did not act get a further window on the same terms. It converts a cliff edge into a ramp, and it materially raises the final holding.
The conditions
- The minimum acceptance condition — the level below which the bidder need not proceed. It may usually be waived, and waiving it is an announcement in itself.
- Regulatory conditions, which behave exactly as they do in a recommended offer.
- No material adverse change — present in most offers and successfully invoked in very few.
Rules that exist to protect the shareholder who does nothing
Takeover regimes impose a set of protections that shape this transaction more than commercial choice does:
- Equal treatment. The same price to everybody in the same class — a bidder cannot pay a large holder more for its block.
- Mandatory bid. Crossing a control threshold by buying in the market usually obliges the buyer to offer the same terms to everybody, at the highest price it paid.
- A minimum period, so nobody is stampeded, and rules on when and how a price may be revised.
4 · AdvancedThe numbers & the documents
The coercion problem, and what the rules do about it
A two-tier offer — a good price for the first shares tendered and a worse one afterwards — makes accepting rational even for a shareholder who thinks the price is too low, because refusing risks being left in the second tier. That is a collective action problem, and the shareholder body loses value it would have kept if it could have decided together.
Equal-treatment rules and mandatory-bid thresholds exist largely to remove it. Where those rules are weak, structure does more work and defences do more work in response; where they are strong, the transaction is closer to a straightforward price question. Understanding which regime you are reading about explains most of the differences between markets.
Getting from a majority to all of it
A bidder that has cleared its minimum but not the squeeze-out threshold has three options, none of them comfortable: live with the minority, buy in the market over time, or use a subsequent transaction to eliminate it. The first is expensive in ways that do not appear anywhere — minority protections restrict what the parent may do with the subsidiary, related-party transactions need approval, and the cash cannot simply be moved.
Once the statutory level is reached, the squeeze-out is available and the remaining holders lose the right to refuse.
Offer or scheme, decided
The comparison with a scheme comes down to three questions. Does the bidder have the board's cooperation — without it a scheme is unavailable at all. Does it need certainty of getting everything, usually because of committed debt. And how much does speed matter, because an offer can be launched in weeks and a scheme cannot.
The receiving agent, and why the arithmetic is trusted
An independent agent collects and counts acceptances. It sounds like plumbing and it is the reason the result is credible to a market that cannot see the envelopes. The same principle runs through this site: clearing and settlement exists because two parties who have agreed something still need somebody neutral to make it true.
The formulas above are standard textbook formulations, simplified for teaching. They explain the mechanism — they are not a valuation tool, and they will not reproduce a dealer’s price.
5 · Desk notesHow people on the deal think about it
Now say it back
Close the page and give Tender offer in four sentences. It takes a minute and it is the only way to find out whether reading it was enough.
- Who wants what — name both sides and what each one is actually trying to get.
- What has to happen, in order — the three or four stages, not the whole timetable.
- Where the money comes from — cash, new shares, or borrowed; somebody has to fund it.
- What kills it — the ordinary way, not the dramatic one.
Where this transaction shows up elsewhere
- EasyRecommended offerDealA listed company bought with its own board's blessing — then a year of waiting for people outside the room
- MediumMinority stakeDealBuying part of a company without buying control — and paying less per share for exactly that reason
- HardScheme of arrangementDealA takeover run through a court: it delivers the whole company or nothing, and the classes decide who has a veto