What Is a Short Tender?
A short tender is an investing practice that involves using borrowed stock to respond to an offer made during an attempted acquisition of some or all of a company's shares. The purchase price of the offer is usually at a premium to the market price.
How Does a Short Tender Work?
Officially, in order to respond to a tender offer, an investor must have a net long position that is equal to or greater than the sum of the tender offer made. (A net long position refers to the number of shares an investor is committed to buy, reduced by any shares the investor is short in the respective security.)
Basically, a short tender is an offer to sell more stock than one owns; the person making the short tender is trying to pay the purchase price of the stock in the offer (which is usually at a premium to the market price) with borrowed shares.
For that reason, short tenders are prohibited by the Securities and Exchange Commission (SEC) under rule 14e-4 of the Securities Exchange Act. Although borrowing shares is allowed in short selling, any attempt to borrow shares in response to a tender offer will lead the SEC to take legal action against the participants.