07 Jan 2016

Love me tender


Background to tender offers

While tender offers are most frequently used by listed companies to effect share buybacks (and indeed the Listing Rules mandate that purchases by a premium listed company of 15 per cent. or more of any class of its own equity shares pursuant to a general shareholder authority can only be by way of a tender offer), they can also be used to acquire stakes in third party companies.

An ordinary takeover offer must be conditional upon an offeror acquiring or agreeing to acquire shares carrying over 50 per cent. of the voting rights in the target company. By contrast a tender offer may only be used to acquire shares carrying less than 30 per cent. of the voting rights, i.e. a non-controlling stake in the target (or for additional acquisitions to be made by an offeror already holding in excess of 50 per cent. of the voting rights in the target).

Reasons for making tender offers

Tender offers to shareholders of third party companies are relatively rare, not least because parties looking to acquire non-controlling stakes in listed companies will typically prefer to approach major shareholders privately through their broker and avoid the cost and public scrutiny inherent in a tender offer. That said, the ability to convey an offer to the entire shareholder base of a company combined with the relative simplicity of such a structure means that, in certain circumstances, they can be an attractive option for companies to consider.

In a tender offer the documentation is generally less complex and there are usually fewer Takeover Code obligations than on a full or partial takeover offer.  The principal documents for effecting a tender offer are a circular sent to target shareholders and a press advertisement placed in national newspapers. There is no need to produce an offer document complying with the full content requirements of the Takeover Code.

The flipside of this simplified structure is that the terms that may be attached to a tender offer are restricted. A tender offer can only be made for cash consideration at either a fixed price or a maximum price dependent on take-up of the tender offer: bidder shares, loan notes or contingent value rights may not be offered as consideration pursuant to a tender offer.

Furthermore, an offeror is prevented from including any form of argument or persuasion in its circular to target shareholders. The only persuasive information that may be included in a tender offer circular is a statement comparing the value of the tender offer with the market value of the shares being offered for. By contrast, the board of directors of a target company are not subject to the same explicit restriction and may publish a defence document or announcement in response to a tender offer, subject always to their wider statutory duties to act in the best interests of shareholders as a whole.

The process

To make a tender offer, Takeover Panel consent is required and the text of the circular and related newspaper advertisement must be approved by the Takeover Panel before it is posted to target shareholders.

Unlike on a takeover offer, there is no express obligation in the Takeover Code for a target company to provide its shareholder register to an offeror on a tender offer to enable that offeror to post its circular, although in practice an offeror who holds or acquires a share, or shares, in the target company will often be able to rely on the Companies Act 2006 provision giving shareholders a right to receive a copy of the register, unless the target can establish that its request is not for a proper purpose. 
A tender offer must remain open for acceptance by target shareholders for at least 21 days. The Takeover Code mandates that a tender offer must be subject to a minimum acceptance condition of at least 1 per cent., although Takeover Panel approval is required for any acceptance condition higher than 5 per cent.

In contrast to a full or partial takeover, having made a tender offer (whether successful or not), there are no Takeover Code timing restrictions regarding the making of further tender offers or as regards the price that may be offered pursuant to such subsequent tender offers.


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