Publicly held companies often grow by acquiring or merging with other companies. They might do so to enter an untapped market, or to reduce competition and consolidate resources. When one company takes over another, it must purchase the outstanding shares of its target. This part of the potential takeover is called a tender offer. When an investor agrees to accept the tender offer for his shares, he tenders those shares.
Takeover or Tender Offer
The Securities and Exchange Commission defines a tender offer as the solicitation by one company, individual or entity to buy a significant portion of a company's outstanding shares during a specific period. The purchasing entity, or share acquirer, offers to buy the shares at a specified price. This price is typically based on a sufficient number of shareholders tendering their shares. If a predetermined percentage of shares aren't tendered, then the tender offer, or takeover, fails.
Notification to Tender
When a takeover is under way, the company must notify you. An advertisement in The Wall Street Journal or other business publication might notify shareholders and exhort them to tender their shares. Companies do this to encourage shareholders to act on the information the companies will send them. As a shareholder, you will receive a notification in the mail, or by email if your brokerage account is set up for electronic notification. SEC rules generally require companies to send notices within one week of a tender offer. For most investors, your broker will send you the information. If you physically hold the shares, the information agent will send you a notice.
Tendering Shares -- Cash Purchase
The information you receive will contain details on how to tender your shares. Generally, for shares held at a brokerage firm or another financial institution, you sign documents, physically or electronically, agreeing to remit all your shares as part of the takeover. The brokerage firm then passes this approval documentation on to the investment banking firm or the law firm handling the takeover. For a cash tender offer, you typically receive payment for your shares within seven to 10 days of the purchase of the shares.
Cash Purchase Continued
If you physically hold the shares, you typically must remit them, along with the signed approval documentation, to the information agent. Using certified mail or a delivery agent helps ensure that your valuable shares aren't lost or misplaced. Another option is to take your shares to your brokerage firm and have your broker submit the shares and documentation. This provides an additional layer of protection. Once the acquirer receives your shares and agreement and completes the share purchase, you'll typically receive payment within 10 days.
You Do Not Tender
If you don't tender your shares, you won't receive any payment until after the merger or acquisition is fully completed. Upon completion of the takeover, your brokerage firm will replace your shares with cash. You will be paid at the tender offer price. If the takeover isn't finalized, you retain the shares you had.
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