Tender of shares: Overview, definition, and example
What is a tender of shares?
A tender of shares refers to an offer by a shareholder to sell their shares in a company, typically to the company itself or to another party at a specified price. This process is often used in the context of mergers, acquisitions, or buybacks where the company or a third party makes an offer to purchase shares from existing shareholders.
For example, during a buyback offer, a company may tender an invitation to its shareholders to sell their shares back to the company at a premium price, often higher than the current market value.
Why is a tender of shares important?
A tender of shares is important because it provides an opportunity for shareholders to sell their shares under specific conditions, often at a favorable price. This process can help a company restructure its ownership, reduce the number of outstanding shares, or provide liquidity to shareholders.
In mergers and acquisitions, the tender offer is a key part of the process, allowing one party to acquire another company by purchasing shares directly from shareholders, rather than buying them on the open market.
Understanding tender of shares through an example
Imagine a company is looking to reduce its outstanding shares by conducting a tender offer. The company offers to buy back shares at $50 per share, while the market price is currently $40. Shareholders who wish to take advantage of this offer can sell their shares to the company at the higher price.
In another case, a company is being acquired by a larger company. The acquiring company may make a tender offer to purchase the shares of the target company’s shareholders. If shareholders accept the offer, the acquiring company will gain control over the target company.
An example of a tender of shares clause
Here’s how a tender of shares clause might appear in a company’s agreement:
“The Company shall have the right to make a tender offer to its shareholders to repurchase up to 10% of the outstanding shares at a price of $50 per share. Shareholders must respond to the offer within 30 days of receiving the notice.”
Conclusion
A tender of shares is a formal offer to purchase shares from shareholders, typically used in the context of buybacks, mergers, or acquisitions. It gives shareholders an opportunity to sell their shares at a specified price, often above the current market value. This process is crucial in corporate restructuring and ensures both shareholders and companies can benefit from agreed-upon transactions.
By understanding how a tender offer works, businesses and shareholders can make informed decisions about selling or buying shares under specific terms.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.