Legal Definitions - creeping tender offer

A creeping tender offer describes a strategic approach where an individual or entity gradually acquires a significant ownership stake in a target company by purchasing shares over time, typically through open market transactions, rather than making a single, large, formal offer to all shareholders simultaneously. This method allows the acquirer to accumulate a substantial percentage of the company's stock, often staying below the threshold that would trigger immediate regulatory requirements for a full tender offer or significant public disclosure of an acquisition intent. By slowly "creeping up" on ownership, the acquirer can build a strong position, potentially gaining influence or control, without the immediate premium costs and intense scrutiny often associated with a traditional, direct tender offer.

Here are a few examples to illustrate this concept:

• Imagine a large technology conglomerate that is interested in acquiring a promising startup specializing in artificial intelligence. Instead of immediately launching a public tender offer, which could drive up the startup's stock price and alert competitors, the conglomerate's investment arm quietly begins purchasing small blocks of the startup's shares on the open market over several months. They might buy 0.5% of the company's stock each quarter for two years. By the end of this period, they have accumulated 4% of the shares. This initial stake gives them a stronger position to negotiate a full acquisition or launch a formal tender offer later, having already secured a foundational ownership without causing a market stir.

  This illustrates a creeping tender offer because the conglomerate is gradually accumulating shares with an ultimate acquisition goal, but without making a formal, immediate offer for control.

• Consider an activist investor who believes a well-known retail chain is being mismanaged and wants to force changes in its leadership and strategy. Rather than making a direct public offer to buy a controlling stake, which would be very expensive and highly visible, the investor starts buying shares of the retail chain in smaller increments through various brokerage accounts over the course of a year. Eventually, they own 8% of the company's outstanding shares. This significant, but not controlling, stake allows them to demand a seat on the board of directors and advocate for their proposed changes, all without ever issuing a formal tender offer to acquire the entire company.

  This shows a creeping tender offer as the investor slowly builds a substantial position to exert influence, avoiding the immediate regulatory and financial burdens of a full tender offer.

• A private equity firm identifies a publicly traded manufacturing company as undervalued. To avoid immediately signaling their intent and driving up the stock price, the firm uses several affiliated investment vehicles to purchase shares of the manufacturing company on various stock exchanges. They acquire 1% of the company's stock every month for a year, reaching a total of 12% ownership. This gradual accumulation allows them to build a significant stake at a lower average cost than if they had announced a full tender offer from the outset, positioning them to either launch a formal bid later or sell their stake for a profit if another buyer emerges.

  This is an example of a creeping tender offer because the private equity firm systematically acquires shares over time to build a strategic position, without making a single, public offer to all shareholders.