The 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. By using this method, 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.

A creeping tender offer is conducted through the purchase of shares on the open market, rather than through a formal tender offer.

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.

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

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