Tender Offer
A tender offer is a public offer to buy shares of a company at a fixed price within a fixed deadline. It is directed at all shareholders simultaneously and is often used in corporate takeovers or at start-ups whose employees want to cash out their shares.
Whoever owns a share in a company holds a stock. A stock is a small piece of ownership in the company. In a tender offer, a buyer approaches all of these co-owners and makes a public offer. They name a fixed price per share and a deadline by which one must decide. Every owner may choose for themselves whether to sell or keep their shares. The buyer can be the company itself, another corporation, or an investor.
Why the fixed price and the deadline create so much pressure
Normally, shares are sold on the stock exchange at the price of the moment. This price fluctuates every second. A tender offer, by contrast, sets a single price for everyone. This price is almost always above the current market price. The markup is called a premium and often amounts to 20 to 40 percent. Without this markup, no one would have a reason to accept the offer.
For the buyer, this procedure is the fastest way to gain control. Whoever holds more than half of the shares effectively determines what the company does. A tender offer allows this majority to be gathered without first asking the company’s management for permission. That is precisely why it is the classic tool for a hostile takeover. The buyer goes directly to the owners, bypassing the board.
For the sellers, the offer is above all an opportunity. In many start-ups, employees hold shares but have nowhere to sell them. A tender offer creates a one-time window for that. Paper value then turns into real money in the bank account.
The process from announcement to settlement
It begins with a public announcement. This states the price, the deadline, and the desired quantity of shares. In the US, the deadline is usually at least 20 business days. During this time, owners declare how many shares they wish to hand over. This is called tendering.
The buyer almost always ties the offer to conditions. A typical condition states: the deal only goes through if at least 50 percent of the shares are tendered. If this quantity is not reached, the whole process falls through. Everyone then keeps their shares, and no money changes hands.
Conversely, there can also be too many offers. If the buyer only wants 30 percent, but 60 percent of shares are tendered, the amount is scaled back. Each seller then gets a proportional share, for example half of the shares they offered. This procedure is called pro-rata allocation. Only after the deadline has passed and after review by the regulatory authorities does the actual settlement take place.
Tender offers at OpenAI, SpaceX, and in takeover battles
In tech news, the term mostly appears in connection with large, not-yet-publicly-listed companies. OpenAI, SpaceX, or Stripe regularly organize such rounds. Investors buy shares from employees and early backers in the process. The price agreed upon in the process also provides the headline for the company’s valuation. When it is reported that a start-up is now worth 300 billion dollars, this figure often stems from exactly such an offer.
The second place where this occurs is in takeover battles between corporations. A well-known example is Elon Musk’s offer for Twitter in 2022. Microsoft's attempt to buy Yahoo also proceeded via such an offer. Some companies fight back with countermeasures that artificially increase the cost of the acquisition. In jargon, these defensive tricks are called poison pills.
A common misconception is that a tender offer is a compulsion to sell. That is not true. No one has to accept; the offer is always voluntary. Only once a buyer owns almost all of the shares can they legally squeeze out the remaining owners. This step is legally separate and is called a squeeze-out.