Tender Offers vs. Long-Form Merger

Until August 2013, there have been two ways to acquire a public target, through a tender offer or through a long-form merger. The former has to do with a two-step transaction, while the latter is a statutory merger that requires the target’s shareholder vote in order to approve the deal.

If you’re planning to acquire a US company, this article shall help you by elaborating the difference between the two means.

Tender Offers

It is ironic how Williams Act, the key piece of federal legislation on the regulation of tender offers, does not even define the term. This vagueness led to cases of confusion about what constitutes a tender offer.

Basically, it is an open offer by a prospect to all stockholders of a publicly traded corporation to tender their stock for sale at a specific price and time. Usually, the acquirer’s offer is higher than the market price to induce the shareholder.

8 Characteristics of a Tender Offer

• Active and widespread solicitation of public shareholders for the shares of an issuer
• Solicitation made for the substantial percentage of an issuer’s stock
• Offer to purchase made a premium over the prevailing market price
• Terms of the offer firm rather than negotiated
• Offer contingent on the tender of a fixed number of shares, often subject to a fixed maximum number to be purchased
• Offer open only a limited period of time
• Offeree subject to pressure to sell his stock
• Public announcements of a purchasing program concerning the target company precede or accompany the rapid accumulation of larger amounts of the target company’s securities

Unlike the long-form merger, the tender offer is more complex. However, the process is relatively quicker since the bidder may be able to acquire control in 20–40 business days. Here, the buyer can bypass management and the board of directors directly.

Still, the purchase is a friendly transaction in which there are a few shareholders, accelerating the process by avoiding the otherwise required management vote.

The downside of tender offers is that the acquirer must convince 100% of the shareholders to sell their stocks in order to gain full control of a company.

Long-Form Merger

Another basic way for the bidder to acquire a company is through the long-form merger. Here, the acquirer seeks 100% ownership through a transaction where it wins the approval of shareholders on taking over the sale of shares.

One advantage of the long-form merger is that it is assured since it is agreed upon, involving additional filing and disclosure requirements.

The only drawback of this method is that it takes two to four months before the bidder achieves full control. This is because it’s more systematized and it needs approval by the SEC

Conclusion

Every acquisition must be thoroughly analyzed first in order to know what strategy will work best for him or her. This includes a review of publicly available documents and a written summary of salient legal issues.

To be fair, the long-form merger has more distinct advantages than the other such as cooperation between the management of the two parties, faster closing, and reduce costs.

However, depending on the situation, a tender offer may be quicker but can only be pursued if the bidder understands the complexity and risk, and if he or she believes negotiation will be futile or alternatives have been exhausted.