What is a Creeping Tender Offer?
A creeping tender offer is the steady amassing of a target business’s shares with the goal of gaining control of the firm or a large voting block within it. In lieu of a formal tender offer, a creeping tender offer is undertaken by purchasing shares on the open market.
Understanding The Williams Act
The Williams Act applies to the activity of buying and selling shares on all U.S. markets. After the 1968 inclusion of this legislation, the provisions of this act contributed to reduce the possibility for the use of a creeping tender offer for many years.
Shareholders must be provided the same price for their available shares, which is one of the Williams Act’s fundamental provisions.
This implies that if one shareholder is given a certain price for his or her shares, the same investor or group of investors cannot offer a different price to another shareholder in order to encourage a transaction.
The group cannot offer a greater per-share price to a different stakeholder until the initial price is rejected.
In accordance with other requirements of the Williams Act, any investor or group of investors intending to buy shares of stock must submit all pertinent tender offer information with the Securities and Exchange Commission and the targeted firm. This specification covers the per-share price of the offering.
Using a creeping tender offer, the organization will seek to avoid these regulations and purchase shares from other owners in secret.
The organization complies with SEC reporting requirements only after acquiring a significant number of shares. The outcome might be that the target firm faces a hostile takeover proposal before it has the opportunity to prepare for the attack.
During much of the second half of the 20th century, it was reasonably straightforward to interpret and implement the terms of the Williams Act so as to exclude the possibility of a creeping tender offer. However, this is no longer necessarily the case.
The application has become more complex due to changes in the structure of derivatives and their relationship to regular company shares. Consequently, there is often a murky area that may let a group of investors to construct and use a creeping tender offer effectively.
Advantages of a Creeping Tender Offer
Using this strategy, an acquirer may buy at least a part of the shares required to take control at current market values, as opposed to the presumably inflated prices it would pay in the case of a formal tender offer.
Additionally, the acquirer may buy a sufficient number of shares to compel its participation on the board of directors with one or more board seats.
This strategy may result in the acquirer being forced to sell a big block of shares in the future, perhaps at a loss, if an acquisition offer fails.
However, it may still be feasible to exert pressure on the target firm to compel the buyback of the shares at a high enough price to prevent a loss or perhaps earn a profit.
Impact on Williams Act Reporting
The creeping tender offer method may be used to circumvent the Williams Act’s formal tender offer reporting requirements required by the SEC. When an acquirer solicits for the shares of a firm at a premium, subject on the tendering of a particular number of shares, tender offer reporting is necessary.
There is no formal criterion for identifying when a creeping tender offer becomes a genuine tender offer; nonetheless, the following analysis may suggest that a tender offer has been made:
- There is a broad and vigorous solicitation of shares.
- Significant fraction of outstanding shares are being solicited.
- The purchase offer is more than the current market price.
- The offer is contingent on the tender of a minimum number of shares.
- The promotion is available for a limited time only.
- The purchaser exerts pressure on stockholders to sell.
- The acquisition of the shares has been announced publicly.
Where have you heard about creeping tender offers?
Widespread news coverage is typically accorded to high-profile, creeping tender bids. For instance, NASDAQ launched a creeping tender offer for the London Stock Exchange in 2006. (LSE).
This entailed NASDAQ purchasing a large number of LSE shares over a period of months prior to initiating a hostile offer in December 2006. The hostile bid was quickly rejected by LSE and subsequently abandoned.
What you need to know about creeping tender offers.
When a firm purchases shares on the open market rather than directly from shareholders, it may typically avoid paying a premium.
It may also impact the board of directors of the target firm, since the acquiring corporation may get a seat on the board if it purchases enough shares. This reduces the target firm’s options, so the acquiring company is better positioned to make a tender offer or pursue a hostile acquisition.
In the United States, a creeping tender offer is used to circumvent the Williams Act, which imposes specific restrictions on public tender offers, such as offering all stockholders the same price.
Creeping tender offers are circumstances in which an investor or group of investors tries to circumvent the main requirements of the Williams Act by acquiring progressively the shares of stock issued by a target firm.
Purchases of shares are limited to those that are available on the open market. Typically, the ultimate objective of a creeping tender offer is to buy sufficient shares of stock to constitute a voting bloc.