Tender Offer is a term in the financial world that is used quite often, especially in the capital market. This term refers to an offer made by a party (usually a company or investor) to buy a number of shares from another company at a certain price. In the Tender Offer process, investors or third parties offer a higher price than the current market price to buy shares of the target company.
The purpose of the Tender Offer is to gain control or greater ownership of the target company, so that investors or third parties can make strategic decisions within the company. Tender Offers can be made by companies that go public, private companies, or individual investors.
The history of Tender Offers can be traced back to the 1960s in the United States, when securities laws were tightened and stock markets became more regulated. Since then, Tender Offers have become one of the most common methods used by companies to acquire shares from other companies.
In this article, we will discuss in more depth the types of Tender Offers, the procedures that must be followed in a Tender Offer, as well as the advantages and disadvantages of a Tender Offer. Apart from that, we will also discuss several case studies of Tender Offers that have taken place in Indonesia and the world, as well as provide recommendations for companies wishing to conduct Tender Offers.
Types of Tender Offers
Tender Offers can be divided into three types, namely Tender Offers made by companies that go public, Tender Offers made by private companies, and Tender Offers made by investors or third parties.
First, Tender Offers made by companies that go public are usually carried out to obtain minority shares in a company. This can be done by companies that want to strengthen control over companies that are their subsidiaries. For example, company A, which has acquired most of the shares of company B, then conducts a Tender Offer to acquire the remaining shares of company B that it does not yet own. In this case, company A can gain full control of company B.
Second, Tender Offers conducted by private companies are usually carried out to obtain a majority stake in a company. In this case, the private company issues an offer to buy shares owned by the majority shareholder in the target company. This is often done in order to gain control of a company that has high growth potential or has valuable assets.
Third, a Tender Offer made by investors or third parties is carried out by parties who wish to acquire a number of shares in a company without having to buy directly on the stock market. In this case, investors or third parties issue an offer to buy shares from the target company’s shareholders at a price higher than the current market price. In some cases, investors or third parties may use a Tender Offer as a tool to take over a company or gain significant influence in the strategic decisions of the target company.
In all types of Tender Offers, the target company’s shareholders can decide whether to sell their shares or not. However, if a large number of shareholders agree to sell their shares, the Tender Offer can be successful and the company receiving the Tender Offer can get the shares it wants.
Tender Offer Process
The Tender Offer process involves a number of stages that must be passed by the company conducting the Tender Offer and the shareholders of the target company. The following are the stages that are usually passed in a Tender Offer:
1. Preparation: Companies wishing to make a Tender Offer must make preparations before issuing a formal bid. This preparation includes gathering information about the target company, financial evaluation, and determining the right bid price.
2. Announcement: After the preparations are complete, the company conducting the Tender Offer must officially announce the offer to the public and the competent authorities. In this announcement, the company must provide detailed information about the bid, including the bid price and bid deadline.
3. Offer: After the announcement, the target company’s shareholders can decide whether to sell their shares or not. The target company’s shareholders may reject the offer or decide to sell their shares at the price already offered.
4. Eligibility: If the number of shares offered by the target company’s shareholders reaches the minimum limit determined by the company making the Tender Offer, then the company will be eligible to acquire shares from the target company.
5. Settlement: After fulfillment of the conditions, the company making the Tender Offer must make payments to the target company’s shareholders who have sold their shares. Furthermore, the company will acquire the shares it wants and can decide what further action to take against the target company.
Advantages and Disadvantages of a Tender Offer
A Tender Offer can provide benefits for the company making the offer and the target company’s shareholders. However, this process can also cause losses for some of the parties involved. Following are some of the advantages and disadvantages that can occur in the Tender Offer process:
– Increase control over the target company: In most cases, the company making a Tender Offer has the goal of gaining full or majority control over the target company. By gaining this control, the company conducting the Tender Offer can make strategic decisions more freely without having to consult other shareholders.
– Acquiring valuable assets: Companies conducting Tender Offers can acquire valuable assets owned by the target company. In some cases, these assets can provide a significant advantage for the company conducting the Tender Offer.
– Increase the value of the company: If the Tender Offer is successful, then the company that makes the bid can get a large profit in the long term. This can happen because the company can control target companies that have high growth potential or have valuable assets.
* Increase costs: The Tender Offer process can increase costs for companies that make bids. These costs include financial consultant fees, legal fees, promotion fees, and transaction settlement fees.
* Triggering negative reactions from shareholders: The Tender Offer process can trigger negative reactions from the target company’s shareholders who do not agree with the offer given. This can exacerbate the situation and extend the time needed to complete the Tender Offer process.
* Triggers uncertainty: The Tender Offer process can trigger uncertainty for the target company and its shareholders. This uncertainty can disrupt the operations of the target company and cause inconvenience to shareholders.
Example of a Tender Offer
One well-known example of a Tender Offer case is when a technology company from the United States, Microsoft, made a Tender Offer to acquire a leading internet company from the United States, Yahoo! Inc., in 2008. Microsoft submitted a bid of $44.6 billion to buy Yahoo!.
However, the offer was rejected by Yahoo! on the grounds that the price offered was too low. In the end, Microsoft withdrew its bid after an agreement was not reached between the two parties. This decision then had a negative impact on Microsoft’s stock price and increased Yahoo!’s stock price. within a short time after the announcement.
In conclusion, a Tender Offer is one method that can be used to acquire a company by buying shares of the target company from shareholders. Even though a Tender Offer can provide benefits for companies that make bids, there are also risks and disadvantages that need to be considered.
As a company conducting a Tender Offer, a well-thought-out strategy and careful planning are needed to maximize the chances of a successful bid. In addition, the company must take into account the response of the target company and shareholders in making decisions.
The case of Microsoft and Yahoo! 2008 also became a lesson that not always a Tender Offer will end successfully, it could even have a negative impact on the companies making the bid if not done carefully.