Tender Offer
A tender offer is a public bid by an acquirer directly to a company's shareholders to purchase some or all of their shares at a specified price — usually at a premium to the current market price — within a defined time period.
Tender offers bypass the target company's board of directors, going directly to shareholders with an invitation to 'tender' (sell) their shares. This makes tender offers a powerful — and sometimes controversial — takeover tool. A 'friendly' tender offer is typically made in coordination with the target's board, which recommends shareholders accept the offer. A 'hostile' tender offer is launched against the wishes of the board, which may respond with defensive measures such as a poison pill (shareholder rights plan), white knight search (seeking an alternative acquirer), or crown jewel defense (threatening to sell the most valuable assets).
The SEC extensively regulates tender offers under the Williams Act (1968 amendments to the Securities Exchange Act). Once a tender offer is launched, the acquirer must file a Schedule TO within ten business days, disclosing the offer price, conditions, funding sources, plans for the acquired company, and any agreements with target management. The target's board must respond within ten business days with its recommendation (Schedule 14D-9), advising shareholders whether to accept or reject the offer. The offer must remain open for at least 20 business days, giving shareholders adequate time to evaluate and decide.
The Regulation 14E provisions impose additional requirements: the acquirer cannot purchase shares until the offer expires, must promptly pay all tendered shares once conditions are met, and must extend the offer if they change the price or extend conditions. 'Best price' rules require the acquirer to pay all tendering shareholders the highest price paid to any shareholder during the offer period — preventing the acquirer from offering a higher price to large institutional holders to secure their cooperation while paying retail investors less.
One of the most famous hostile tender offers in U.S. history was Carl Icahn's 1985 bid for TWA, which he ultimately won but which many argue destroyed the airline over time. More recently, Elon Musk's acquisition of Twitter in 2022 was structured as a friendly tender offer at $54.20 per share ($44 billion total), though the transaction was marked by Musk's attempted withdrawal from the deal and subsequent legal battles before ultimately closing in October 2022.
Tender offers are also used in leveraged buyouts (LBOs), where a private equity firm borrows most of the purchase price and tenders for all of the target's shares. Once the target is taken private, the heavy debt load is placed on the acquired company's balance sheet and serviced from its own cash flows. This structure — exemplified by Kohlberg Kravis Roberts' iconic 1989 takeover of RJR Nabisco — has defined leveraged finance for decades.