Tender offers are attempts by investors to buy some or all of an individual shareholder’s stocks in a publicly traded corporation directly from the shareholder rather than on the open market. This method of purchasing stocks is typically used when an individual or entity is interested in initiating a takeover bid, which is a way of taking over a company by purchasing enough stocks to become the largest shareholder. The directors of the targeted company may or may not be agreeable to the tender offer (investors do not need their permission to continue with it), and the investor may approach shareholders privately or announce the offer publicly in a newspaper or other media outlet.
In order to entice shareholders to sell their stocks through a tender offer, the price offered is usually above market value and takes into consideration any price fluctuations that may be expected in the short term. The offer price may also include conditions, such as requiring a specific number of shareholders to agree to sell in order to receive a certain price. Generally, for a tender offer to be completed the investor must file paperwork with the Securities and Exchange Commission (SEC) and disclose their intent to the targeted company.