Tender Offer
What is Tender Offer?
A Tender Offer is a public proposal made by an individual, company, or investor group to buy shares from shareholders of another company, usually at a premium price (higher than the current market value), and within a specified timeframe.
The goal is to acquire a significant or controlling stake in the company.
How it works?
- The acquirer (or bidder) offers to buy a set number of shares at a specified price.
- The offer is made directly to shareholders, bypassing the company’s management.
- Shareholders can choose to “tender” (sell) their shares during the offer period.
- If enough shareholders agree, the acquirer gains ownership as planned.
Key Features
- Premium Price: Offered above the current share price to incentivize shareholders.
- Time-Bound: Offer remains open for a limited period (as per regulatory rules).
- Direct Appeal: Goes straight to shareholders, not through management.
- Voluntary Participation: Shareholders are free to accept or reject the offer.
Types of Tender Offers
- Friendly Tender Offer – With support from the target company’s board.
- Hostile Tender Offer – Without the board's approval.
- Delisting Tender Offer – For promoters to buy out public shareholders and delist the company.
- Buyback Tender Offer – Company offers to buy back its own shares from shareholders.
Why Tender Offers are Made?
- To gain control of a company (friendly or hostile takeover)
- To increase ownership in a company (by promoters or large investors)
- For delisting: When a company wants to go private
- To return capital to shareholders (in share buybacks)
Example
An investor wants to acquire a 51% stake in XYZ Ltd., whose stock is trading at ₹100. They make a tender offer to buy shares at ₹120. Shareholders who accept the offer get ₹120 per share. If enough shares are tendered, the investor gains control.
Tender Offers in India
In India, tender offers are regulated by SEBI (Substantial Acquisition of Shares and Takeovers) Regulations. Key points:
Mandatory open offers are triggered when an investor acquires more than 25% of a listed company.
Delisting offers are also conducted through a tender process.
The offer price must meet minimum pricing rules set by SEBI.
Tender Offer vs. Open Market Purchase
| Aspect | Tender Offer | Open Market Purchase |
|---|---|---|
| Method | Direct proposal to shareholders | Buy shares through the stock exchange |
| Price | Fixed, usually at a premium | Varies with market price |
| Speed | Happens in a defined timeframe | Can happen over time |
| Purpose | Usually for control or delisting | Can be for investment or control |