Legal Definitions - cash tender offer

A cash tender offer is a specific type of proposal made by one party (the "bidder") to directly purchase shares of another company (the "target company") from its existing shareholders. In this offer, the bidder explicitly proposes to pay cash for each share, typically at a price higher than the current market value, and sets a specific timeframe during which shareholders can "tender" or offer their shares for sale.

This strategy is often employed when a company or investor seeks to acquire a significant stake, or even full control, of another company, sometimes bypassing the target company's board of directors if they are resistant to an acquisition.

• Example 1: Hostile Takeover Attempt

  Imagine "InnovateTech Inc.," a large technology conglomerate, wants to acquire "FutureGadgets Corp.," a smaller, innovative startup. FutureGadgets' board of directors rejects InnovateTech's initial merger proposal. In response, InnovateTech Inc. decides to launch a cash tender offer directly to FutureGadgets' shareholders. They announce a public offer to buy all outstanding shares of FutureGadgets Corp. for $60 per share in cash, which is a 25% premium over FutureGadgets' current stock market price, for a period of 45 days.

  How it illustrates the term: This scenario demonstrates a direct offer made to shareholders, bypassing the resistant board. The key element is the explicit offer of a specific cash price ($60 per share) for the shares, within a defined timeframe (45 days), to gain control of the target company.

• Example 2: Taking a Public Company Private

  Consider "Equity Partners Group," a private equity firm, which identifies "Retail Solutions Inc.," a publicly traded company, as an attractive investment. Equity Partners Group decides to acquire all of Retail Solutions Inc.'s shares and take the company private, removing it from the stock exchange. To achieve this, Equity Partners Group initiates a cash tender offer, proposing to purchase all outstanding shares of Retail Solutions Inc. for $45 per share in cash, a significant premium over its recent trading price, over a 30-day period.

  How it illustrates the term: Here, the private equity firm is making a direct offer to all public shareholders to buy their shares. The payment method is clearly specified as cash, and the goal is to acquire all shares to delist the company, all within a set timeframe.

• Example 3: Strategic Partial Acquisition

  Suppose "Green Energy Corp." wants to form a strategic alliance with "Battery Innovations Ltd." and gain a significant, but not controlling, ownership stake to influence its future direction and technology development. Instead of negotiating a full merger, Green Energy Corp. announces a cash tender offer to acquire up to 35% of Battery Innovations Ltd.'s outstanding shares. They offer $80 per share in cash, which is a substantial premium, for a 25-day window, directly to Battery Innovations' shareholders.

  How it illustrates the term: This example shows a bidder making a direct offer to shareholders to acquire a specific percentage of shares. The offer is for a clear cash payment per share, and it is limited by both the percentage of shares sought and a specific duration, demonstrating the flexibility of a cash tender offer for strategic investments.