What Is a Cash Tender Offer?

Sometimes, one corporation decides that acquiring a sizable portion of the stock of another is to its advantage, and it offers shareholders of the target company cash or shares of its own stock. When such a cash offer meets Securities and Exchange Commission guidelines, it is termed a cash tender offer. Tender offers that acquire more than 5 percent of the target company’s stock are subject to SEC filing and disclosure regulations.

Tender Offer Eight Factor Test

A transaction is a tender offer if it meets eight tests. First, the acquiring firm must actively solicit a large number of shareholders of the target company. The goal must be to buy a significant percentage of the outstanding shares with a price offer above the market price. The terms of a cash tender offer aren’t negotiable. The tender offer is contingent on the acquirer securing a stated maximum number of shares and there is a time limit for shareholders to agree to sell. In addition, the shareholders are pressured to sell. Finally, there must be a public announcement of the tender offer before or concurrent with the acquirer purchasing a substantial number of shares.