tjh290633 wrote:I thought that tender offers involved shareholders tendering their shares for purchase by the company. Usually a strike price is set, based on those at which holders tender their shares and there may be a cut-off level, above which tenders will be rejected.
Compared with buy back of shares, the holder can decide whether to participate. If he does not, then he retains the original number of shares.
What sort of tender offer are you discussing?
I've seen two types.
In the simpler type, the company sets a single price and offers shareholders the chance to tender their shares at that price. The price they set is generally slightly above the prevailing market price, enough to give shareholders an incentive to tender their shares. In the event that they get more acceptances than they want, all acceptances get scaled back. That scaling-back counteracts the arbitrage play of accepting the tender offer at the price being offered and buying on the market at the lower price being offered there (assuming you get in quick enough) because shareholders don't know exactly how many of their shares will end up being bought by the company and so cannot match their market purchase to their tender offer sale - i.e. it prevents any such manoeuvre being a pure arbitrage play because of the risk of being left with a holding that loses money because the market price drops after the tender offer is over.
In the more complex type, the company sets a list of acceptable prices, such as "multiples of 2p from 120p to 140p" and invites shareholders to tender their shares at those prices. The range is typically from somewhat below to a fair amount above the prevailing market price IIRC (though it's many years since I last encountered any type of tender offer and even longer since I last encountered this type, so IDNRC!), and the offer is resolved by working upwards through the list of prices. At each price, they determine how many acceptances there are at that price or lower
, and multiply it by that price. When they first get to a price at which that product is >= the amount they want to distribute, they've found the 'strike price'. They then buy all the shares tendered by anyone below the strike price, and scale back the shares tendered by people at the strike price as needed to distribute the desired amount. All shares bought are bought at the strike price - e.g. if you tender your shares at 130p and the strike price is 132p, you'll sell all the shares you tendered for 132p each (not 130p); if the strike price is 130p, you'll sell some of the shares you tendered for 130p each; if the strike price is 128p, you won't sell any of the shares you tendered. So basically, it's a type of auction, but not the type one first thinks of where the best bids get satisfied at what they're for, then the next best ones at whet they're for, etc.
Both types often have tweaks designed to avoid people being left with ridiculously small shareholdings, but that's the essence of them.
The second type in particular can be messy to respond to, especially as you can tender different parts of your shareholding at different prices (this is essential for most nominee brokers, as they'll have single shareholdings that are the 'pooled' holdings of all their clients who have shares in the company, and they need to be able to pass their clients' varying responses on to the company in a way that will result in them all getting what they've said they want). And what nominee brokers ask for in terms of responses from their clients my or may not be simplified from that... :-
( But for HYP practical purposes, there's no difficulty about responding for a non-tinkering HYPer: simply treat it like any other offer to sell your shares, i.e. don't accept at all! And for a tinkering HYPer, it's not really any more complex than any other 'to sell or not to sell' decision...
I should add that both types of tender offer do run the risk for the company of failing to distribute all the cash they want to because they don't receive enough acceptances. I've never seen that happen, which I presume means that corporate advisers are generally quite good at choosing appropriate level(s) at which to pitch a tender offer, but if it does, I presume that the company goes through with it as far as all the acceptances it did receive are concerned, distributing some of the cash it wants to in the process, and thinks again about how to distribute the rest.