The Process of the Tender Offer

The Process of the Tender Offer

The stock market is a place where buyers and sellers congregate to trade.  Usually, when you sell shares, you can just click sell and the broker will match a buyer on the other side and vice versa when you buy shares.  However, there may be a special occasion where a buyer will contact you directly with a proposal in the mail, stating that you can sell your shares through a tender offer.

Understanding the Tender Offer

The tender offer is a public offer from a prospective buyer looking to acquire shares of a particular company.  Tender offers are often a result of an attempt to gain control of or take over the company.  Usually the potential buyer will first try to negotiate with the board of directors.  However, if those negotiations don’t result in a deal, the buyer can then try to purchase shares by making a tender offer directly to the shareholders.

The offer is usually valid for a particular window of time for a specified price; typically at a premium of the market price in order to induce shareholders to sell.  For example, if a stock is trading at $5.43, the tender offer may have a price of $6.50 open through the next month.  However, tender offers will typically commence once a minimum number of shares have been tendered.  As a result, if not enough people agree to the tender offer of $6.50 per share, the tender offer may fail.

A good indicator of whether or not a tender offer will go through or fail is the stock price.  If the stock price increases towards the $6.50 price range and remains flat after the announcement, that can likely signify the tender offer will commence.  When the shareholders are confident they will receive $6.50 per share, the market price reacts accordingly.  On the flip side, if the stock price is unchanged or reacts in a different manner than specified above, that could mean that the tender offer likely will not happen.

Tender Offers and the Snider Method

In the Snider Investment Method, we typically avoid tendering our shares because of the complications that may arise with open options and the process involved.  Tendering shares is also no different than selling shares in the open market, except you are selling to a specified party for an exact price, which is also not a part of the Snider Method.  As a result, if you receive a tender offer in the mail, you can ignore it, but keep an eye out for a potential Position Alert on the Wednesday before Trade Day.