Creeping tender offer definition
/What is a Creeping Tender Offer?
A creeping tender offer is the gradual accumulation of a target company's shares, with the intent of acquiring control over the company or obtaining a significant voting block within it. A creeping tender offer is conducted through the purchase of shares on the open market, rather than through a formal tender offer.
Example of a Creeping Tender Offer
In 2012, billionaire investor Carl Icahn used a creeping tender offer approach to build a significant stake in Netflix. Here is how it unfolded:
Initial stake building. Icahn began acquiring Netflix shares through the open market and derivative contracts without making an explicit tender offer to shareholders. He took advantage of Netflix's stock price decline during that period.
Significant ownership. By the time Icahn disclosed his stake (as required by SEC rules for holdings exceeding 5%), he had quietly accumulated nearly 10% of Netflix's stock.
Market reaction. Icahn's stake acquisition became public knowledge in October 2012, sending Netflix's stock price soaring as investors speculated about potential strategic moves, including a possible takeover.
Strategic influence. Icahn used his position to advocate for strategic changes at Netflix, including a sale of the company. Although Netflix ultimately was not sold, Icahn later profited significantly from his investment when the stock's value increased dramatically.
This event is classified as a creeping tender offer for the following reasons:
Icahn did not launch a formal tender offer for Netflix shares.
He gradually accumulated shares below the 5% disclosure threshold, avoiding early detection.
His actions were eventually aimed at influencing Netflix's strategic direction, a hallmark of activist investors using creeping tactics.
This example highlights how creeping tender offers can be used by investors to amass significant stakes in a company, often in preparation for broader strategic objectives like gaining control, pushing for changes, or profiting from stock price movements.
Advantages of a Creeping Tender Offer
By using a creeping tender offer, an acquirer can obtain at least a portion of the shares it needs to exercise control at current market prices, rather than at the more inflated rates that it would likely pay in the event of a formal tender offer. The acquirer may also obtain a sufficient number of shares to force its participation in the board of directors with one or more board seats.
This approach can mean that the failure of an acquisition bid will leave the acquirer with a large block of stock that it will presumably have to liquidate at some point in the future, possibly at a loss. However, it may still be possible to apply pressure on the target company to force the repurchase of the shares at a sufficiently high price to avoid a loss, or even generate a profit. If the target company can be pressured to buy at a price higher than the market rate, this is known as greenmail.
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Impact on Williams Act Reporting
The creeping tender offer approach can be used to avoid the formal tender offer reporting requirements imposed by the SEC under the Williams Act. Tender offer reporting is required when an acquirer is soliciting for the shares of a business at a premium, with the offer being contingent upon the tendering of a certain number of shares.
There is no specific test for determining when a creeping tender offer constitutes an actual tender offer, though such a situation can be subjected to the following analysis, where a preponderance of the results can indicate that a tender offer has been made:
There is an active and widespread solicitation for shares
The solicitation is for a substantial proportion of the shares outstanding
The purchase offer is at a premium over the market price
The offer is based on a minimum number of shares being tendered
The offer is available for a limited period of time
The buyer is applying pressure for shareholders to sell
There has been a public announcement of the share purchase