Questions About Tender Offers

I recently received an email that contained several good questions about stock tender offers from someone interested in joining Fat Pitch Financials Contributor’s Corner. I thought you might be interested in those questions and my answers to them.

When acquiring an odd-lot following the announcement of a tender offer, what must be done next to ensure participation in the tender?

You need to contact your broker to let them know you want to tender your shares.

Do you receive a form in the mail which must be completed to indicate your desire to participate in the tender?

Not usually.

Do you mail this form to the company doing the tender or to your brokerage?

No, unless you hold the physical stock certificates. Normally, you should just work with your broker.

How do you ensure that you will receive the form in time to participate in the tender?

There is no need to wait for forms.

Some forms mailed to me via my broker seem to take some time to reach me. Is there often a way to find the relevant forms online?

Go to SEC EDGAR and review all the current filings for the company. You can also check the company’s investor relations webpage if they have one.

If you mail the form to the company doing the tender, do you need to notify your broker that you will be participating?

Contact the broker first, since rarely do you need any forms.

Does a broker typically charge you a commission when the tender is completed and your shares exchanged for cash?

It depends on the broker, but many discount brokers do charge a fee for tender offers. It is higher than the typical commission. I pay $25 to tender but I’ve heard of others paying as high as $50.

What do you see as the main risks to this “arbitrage”, are they simply that the tender will be called off and the stock will then trade down?

The tender price is not usually fixed, so there is the danger that the tender offer will come in at the low end of the range. There is also the risk that the tender offer could be called off or modified (lower offer). There is also the potential that the odd-lot provision is removed at the last second.

What is a company’s ability to rescind a tender once it is announced?

Corporations have great lawyers so they always leave a loop hole in so they can easily rescind a tender offer.

I know this is a lot of questions. If you have the chance to answer some I would greatly appreciate it. Once I get a little more comfortable with some of the details, I look forward to joining the Contributor’s Corner. Thanks again for maintaining the site!

We talk about a lot more than odd lot tender offers at Contributor’s Corner. We also look at going private transactions, spinoffs, and other unique opportunities that come up. The archives are also a great resource since you can read over all the questions and comments provided by other investors on deals. There are a lot of lessons learned in the over 1700 entries.

The author of these questions joined Contributor’s Corner the day after I answered his questions. If you have any additional questions about tender offers, please feel free to post them in the comments section below.

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