It would be in the best interests of shareholders to accept a tender offer if it is well above the current market price – and if they do not see another bidder on the horizon. They may have reason to believe that the tender offer may vanish if they do not act soon. Tender offers tend to be above the market price of a stock and are made by a competitor, an investor or a private equity company looking to take the company private.

Tender Offer

In most cases, the tender offer reveals that the market price of the company undervalues it. The price rapidly climbs; in some cases, it incites a bidding war that leads to much higher prices. In these cases, a shareholder would be better off being patient and possibly buying more stock as the tender offer tends to put a floor under the stock price.

When to Accept

In other cases, shareholders are better off if they take advantage of the bid premium and accept the tender offer. This is most applicable when market conditions are not ideal and a buyer has a variety of options in the industry to deploy cash for a takeover.

When market conditions are less than ideal, buyers may have difficulties in finding a backer to finance their deals. Financing may be pulled if economic or industry conditions worsen. If shareholders are not quick to accept the offer, they may pull it and target a competitor that is more amicable to making a deal. This typically results in a dramatic decline in the stock price.

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  1. Tender Offer

    An offer to purchase some or all of shareholders' shares in a ...
  2. Hedged Tender

    A strategy in a tender offer where an investor short sells a ...
  3. Proration

    A situation during a corporate action in which the available ...
  4. Debt Tender Offer

    A debt tender offer is when a firm retires all or a portion of ...
  5. Schedule TO-I

    This schedule is known as an "issuer tender offer statement." ...
  6. Saturday Night Special

    An obsolete takeover strategy where one company attempted a takeover ...
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