A Tender Offer Goes Around the Board and Straight to Shareholders
A merger requires the target board to agree. A tender offer does not, which is why it is the structure of choice when the board has said no.
Two Routes to the Same Place
An acquirer wanting to buy a public company has two structures available.
A one step merger runs through the board. The two companies negotiate, sign an agreement, file a proxy statement, and the target's shareholders vote at a meeting. If the vote passes, all shares convert to the agreed consideration.
A tender offer goes directly to shareholders. The acquirer publicly offers to purchase shares at a stated price, and each holder decides individually whether to tender. No shareholder meeting, no vote, no requirement that the board agree to anything.
Why the Difference Matters
The proxy route requires board cooperation, because the board controls whether an agreement gets signed and a meeting called. A board that opposes a deal can simply decline.
A tender offer removes that gate. The acquirer is making an offer to the owners of the company, and the board's opinion, while influential, is not procedurally required.
The board runs the company. The shareholders own it. A tender offer is the structure that exploits the difference between those two facts.
Speed
Tender offers are faster. Federal rules require an offer to remain open for a minimum of twenty business days, and if conditions are satisfied a deal can close within roughly a month of launch.
A one step merger involves preparing a proxy statement, submitting it for regulatory review, mailing it, and holding a meeting. Three to four months is normal, and the buyer carries market and financing risk throughout.
| One step merger | Tender offer | |
|---|---|---|
| Board consent | Required | Not required |
| Shareholder vote | Yes, at a meeting | No, individual decisions |
| Typical timeline | 3 to 4 months | 4 to 6 weeks |
| Suits hostile approach | No | Yes |
Cleaning Up the Rest
A tender offer rarely captures 100 percent of shares. Some holders never respond, and some hold out hoping for a better price.
The mechanism for finishing the job is the squeeze out merger. Once the acquirer holds a sufficient majority, typically 90 percent in Delaware, it can execute a short form merger cashing out remaining holders at the same price without a vote.
A 2013 amendment to Delaware law made this considerably easier, allowing a squeeze out at the threshold that would have been required to approve a merger, provided the tender offer was made for all shares on the same terms. That change removed much of the historic procedural disadvantage of the two step structure, and two step deals became common even for friendly transactions.
The Rules Around It
Tender offers are governed by rules designed to protect shareholders from coercion. The offer must be open to all holders on the same terms. If the price is raised, everyone who already tendered receives the higher price. Holders may withdraw their shares while the offer remains open. If the offer is oversubscribed and the acquirer is buying only part, shares must be taken proportionally.
These exist because of the structure's historic abuse. In a two tier front loaded offer, a bidder would pay cash for a controlling block and then squeeze out the remainder at a lower price in inferior consideration, creating pressure to tender early regardless of whether the price was fair. Modern rules and the best price requirement removed most of that coercion.
The Board Still Has a Role
The target board must respond formally, stating a recommendation and its reasoning. It retains defensive tools, most importantly the poison pill, which can make completing a tender offer impossible without board cooperation.
The practical result is that a hostile tender offer usually runs alongside a proxy campaign to replace directors, since removing the pill requires a board willing to remove it.
The Bottom Line
A tender offer buys shares directly from holders, skipping the board and the shareholder meeting, which makes it faster than a merger and the natural structure for a hostile approach. Squeeze out provisions clean up the minority afterwards. Its limit is the poison pill, which is why hostile bids are typically two campaigns running at once: one for the shares and one for the board.