Legal Definitions - public-exchange offer

A public-exchange offer occurs when one company makes a direct, public proposal to the shareholders of another company to acquire their shares. Instead of offering cash, the acquiring company offers its own securities (such as shares of its stock, bonds, or other financial instruments) in exchange for the target company's shares. This type of offer is typically made to gain control of or merge with the target company, and it is made publicly to all shareholders, giving them the option to exchange their holdings.

Here are some examples to illustrate a public-exchange offer:

• Imagine "InnovateTech Inc.", a large, publicly traded software company, wants to acquire "CodeCrafters LLC", a smaller but highly innovative app development firm. Instead of paying cash, InnovateTech Inc. announces a public-exchange offer to all CodeCrafters LLC shareholders. InnovateTech proposes to give each CodeCrafters shareholder 1.5 shares of InnovateTech stock for every 1 share of CodeCrafters stock they own. This is a public-exchange offer because InnovateTech is directly approaching CodeCrafters' shareholders with a public proposal to exchange their CodeCrafters shares for InnovateTech's own shares.

• Consider "Global Pharma Corp.", a major pharmaceutical company, aiming to acquire "BioDiscovery Labs", a biotech startup with a promising new drug patent. Global Pharma Corp. launches a public-exchange offer, proposing to BioDiscovery Labs' shareholders that for every share of BioDiscovery Labs stock they hold, they will receive a combination of 0.75 shares of Global Pharma Corp. stock and a convertible bond issued by Global Pharma Corp. This constitutes a public-exchange offer because Global Pharma is making a public bid to BioDiscovery's shareholders, offering its own securities (stock and bonds) as payment for the target company's shares.

• Suppose "MegaMart Retail Group", a large supermarket chain, seeks to expand its presence by acquiring "Neighborhood Grocer Inc.", a regional competitor. MegaMart Retail Group makes a public-exchange offer to all shareholders of Neighborhood Grocer Inc., proposing to exchange 2 shares of MegaMart Retail Group stock for every 3 shares of Neighborhood Grocer Inc. stock. This is a public-exchange offer because MegaMart is publicly soliciting Neighborhood Grocer's shareholders to swap their shares in the target company for shares in the acquiring company.