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Tender offer

A tender offer is an offer to purchase a block of company stock. It can be a kind of takeover bid for a public company.

Expanded Definition

In a tender offer, a bidder offers to purchase outstanding shares directly from the current shareholders at a stated price. The goal can be to accumulate enough shares to gain a controlling stake in the business. A company can also use a tender offer to buy back a block of stock. It can be a way to offer surplus cash to shareholders.

To convince shareholders to part with their shares, they are usually offered a premium over the current market price of those shares. However, the offer can be conditional on enough shareholders agreeing to sell to provide a controlling stake in the business. The offer can also be oversubscribed, meaning shareholders tendered more shares than the offering company wishes to buy. Usually that results in partial acceptance of the shares tendered.

Should you accept a tender offer??

The tender offer is optional. Do you want to tender your shares (ie accept the offer) or keep yours for later appreciation?

Do you have tax considerations? Is this in a tax protected account? Or taxable? And if taxable, are your shares long term or not?

Accepting the offer is usually a good idea unless you have a good reason not to. Shares may not reach the offered price again for several years. On the other hand, perhaps a bidding war will erupt and a better price will be offered later. What does management recommend?

Note if it's a tender for all outstanding shares, the market price of the shares will usually rise to the offer price or near it. Selling on the open market is often preferable to tendering your shares. Selling gets you cash sooner, as time may be required to process shares tendered. The tender offer can be oversubscribed. Then they will take a percentage of your shares rather than all.

Whatever you decide, tell your broker (if your shares are held in street name) and they will take care of it. If you hold the certificates, usually your offer letter tells you to sign certificates on the back and mail them to a specified address. You will receive back a check for your shares accepted and a new certificate for any shares not accepted.

Some brokers are said to charge a service fee for tendering your shares. Many charge nothing. Investigate the fees involved before you decide. The commission to sell shares could be lower than the service fee. Tendering shares usually means selling them without paying a commission.

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