What is a 'Creeping Tender Offer'

A creeping tender offer, also known as a creeping acquisition, is a takeover strategy involving the gradual acquisition of a public company's shares on the stock market, instead of making a direct bid.

BREAKING DOWN 'Creeping Tender Offer'

Creeping tender offers are used in some countries to enable an acquirer to surreptitiously gain a controlling interest in a company, in order to reduce the acquisition premium that might otherwise be paid in a formal tender offer.

In the U.S., the technique has virtually disappeared since the 1980s, because poison pills are a reliable defense against creeping acquisitions. They make it impossible to cross certain ownership thresholds without the board’s consent. Also, the Securities and Exchange Commission rules require any corporation or individual acquiring 5% of a public company to file a Schedule 13-D form with the SEC, the company and the exchange(s).

However, in 2014, Valeant’s hostile takeover bid for Allergan, a global pharmaceuticals company, supported by activist hedge fund Pershing Square Capital Management, raised fears that creeping tender offers could make a comeback. Allergan shareholders filed a lawsuit against Pershing Square and Valeant, alleging the joint takeover bid violated securities laws regarding a tender offer for the purchase of shares from Allergan shareholders. It claimed that Pershing Square was essentially trading shares in Allergan in advance of a tender offer from Valeant, which Pershing Square knew was going to happen.

Because poison pills are not legal in most European countries, creeping tender offers are a feature of the market for corporate control – often enabling suboptimal acquirers from taking over companies. In Italy, companies are free to build stakes up to 30% before having to make a mandatory bid.

To defend themselves from hostile takeovers, European companies fall back on defensive strategies, such as dual class stock structures – which neuters the market for corporate control. By making companies less contestable, such ownership structures damage market efficiency and the ability of investors to create shareholder value by taking over failing companies with poor corporate governance and holding bad management to account.

RELATED TERMS
  1. Tender Offer

    A tender offer is an offer to purchase some or all of shareholders' ...
  2. Tender

    To tender is to invite bids for a project or accept a formal ...
  3. Hedged Tender

    A hedged tender is a strategy in a tender offer where an investor ...
  4. Blitzkrieg Tender Offer

    Blitzkrieg tender offer was a takeover offer intended to be so ...
  5. Margin Creep

    Margin creep has a couple of meanings in finance. In either case, ...
  6. Cost Of Tender

    Cost of tender is the total charges associated with the delivery ...
Related Articles
  1. Managing Wealth

    3 Benefits of a Successful Tender Offer: Cliffs Natural (CLF)

    Learn about the potential benefits that the debt tender offer by Cliffs Natural Resources had for the company's balance sheet and income statement.
  2. Investing

    Bill Ackman's Pershing Square Down 18.6% as of May

    Betting on a Pershing Square recovery is a bet not only Bill Ackman, it's also a wager that Valeant can eventually get its business in order.
  3. Investing

    Qualcomm May Have to Pay $120 to Clinch NXP Deal

    Qualcomm may have to boost its $110-a-share bid price for NXP given the current lackluster enthusiasm.
  4. Investing

    Bill Ackman on Concentrated Portfolios, Lessons From Valeant (VRX)

    Explore the lessons of concentrated portfolios, including how Bill Ackman's strategy change at Pershing Square mirrors one at his previous fund, which closed.
  5. Insights

    Valeant Investment Was a 'Huge Mistake'

    Bill Ackman has called his investment in Valeant a mistake, saying he misjudged the ability of Valeant’s former management team.
  6. Small Business

    Corporate Takeover Defense: A Shareholder's Perspective

    Find out the strategies corporations use to protect themselves from unwanted acquisitions.
  7. Investing

    Ackman's Pershing Square Down 20%

    The firm also let go of 10% of its back-office staff.
  8. Insights

    Valeant's Meltdown in 2016: A Year In Review

    The embattled drug company, whose year was marred by lawsuits and controversy, has time to change its course
  9. Investing

    How Low Will Valeant Go? (VRX)

    A week after its stock price surged, Valeant Pharmaceuticals International Inc. is down in the dumps once again.
  10. Investing

    Qualcomm’s Odds of Boosting NXP Bid Are Rising

    Qualcomm may need to pony up more than $110 a share if it wants to clinch the NXP Semiconductors deal.
RELATED FAQS
  1. What happens to the shares of stock purchased in a tender offer?

    Learn what a tender offer is, whether it is a good idea to accept a tender offer and what happens to the shares of stock ... Read Answer >>
  2. What happens to the shares of a company that has been the object of a hostile takeover?

    Learn about the effect on the share price of companies that are targets of hostile takeovers, which are tactics used by famed ... Read Answer >>
  3. What is the difference between a "flip-in" and "flip-over" poison pill?

    Learn about strategies used to defend against hostile takeovers, what a poison pill is and the difference between a flip-in ... Read Answer >>
  4. How can a company buy back shares to fend off a hostile takeover?

    Learn about why a business might use a stock buyback to thwart a hostile takeover attempt by reducing its total assets and ... Read Answer >>
  5. What is a staggered board?

    A staggered board of directors (also known as a classified board) is a board that is made up of different classes of directors. ... Read Answer >>
Trading Center