What Happens to the Shares of Stock Purchased in a Tender Offer?

The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, like any other shareholder, has the right to hold or sell the shares at his discretion.

What Is a Tender Offer?

A tender offer is made when a prospective purchaser makes an offer to existing shareholders to purchase some or all of their stock shares in a company at a certain price. A company may make a tender offer to existing shareholders to buy back a quantity of its own stock to regain a larger equity interest in the company and as a way to offer additional return to shareholders. Alternatively, tender offers sometimes come from an outsider who is seeking to get a controlling interest in, or take over control of, the company or simply aiming to obtain a significantly larger equity interest in the company.

Most tender offers are made at a specified price that represents a significant premium over the current stock share price. For example, a tender offer might be made to purchase outstanding stock shares for $18 a share when the current market price is only $15 a share. The reason for offering the premium is to induce a large number of shareholders to sell their shares.

In the case of a takeover attempt, the tender may be conditional on the prospective buyer being able to obtain a certain amount of shares, such as a sufficient number of shares to constitute a controlling interest in the company.

Is It a Good Idea to Accept a Tender Offer?

The common wisdom is that since tender offers represent an opportunity to sell one's shares at a premium to their current market value, it is usually in the best interests of shareholders to accept the offer. However, it is possible that individual shareholders may have good reasons to not accept the offer, such as tax considerations regarding capital gains realized on the sale.

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