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Shareholders may occasionally see tender offers made for stocks they own. A tender offer can be an unsolicited takeover attempt by another company (aka a hostile takeover). Such offers are usually priced at a premium. Mini-tender offers, conversely, are smaller and can be an attempt to get you to sell your shares at a discounted price.

Tender Offers Explained

A tender offer is a broad solicitation to buy shares of a company. It can be issued by the company itself or by a third party. A traditional tender offer proposes acquiring what the U.S. Securities and Exchange Commission (SEC) describes as a “substantial percentage of a company’s securities” for a limited time. These offers must include an expiration date.

It is typical for the offer to be priced at a premium above the current market price. Tender offers are customarily contingent on a specific number of shares being surrendered by shareholders.

Filing requirements are triggered whenever a tender offer will result in the acquiring party holding more than 5% of a class of a company’s securities. Parties who will own more than 5% of the target company must file a Schedule TO with the SEC. A person who acquires more than this amount, either directly or by a tender offer, must also file a Schedule 13D. The company that is the target of the tender offer must file its response to the takeover attempt on Schedule 14D-9. These filings can be accessed through the SEC’s EDGAR database.

Mini-Tender Offers Differ From Traditional Tender Offers

A mini-tender offer is a proposal to acquire less than 5% of a company’s outstanding shares. Because the offer covers a smaller proportion of shares, the same disclosure rules do not apply. The party making the mini-tender offer does not even have to notify the target company about its proposal. Rather, all the SEC requires is that the bidders not engage in fraud or deceptive practices, hold the tender offer open for a minimum period of time and make a prompt payment to investors after the offer closes.

The target company has to comment on the offer. The target company can say it thinks shareholders should accept or reject the offer. It can also state that it has no position or is staying neutral. However, it is possible for a mini-tender offer to be made without the target company being aware of the proposal.

The SEC advises investors to take several steps when receiving a proposal to tender their shares. These include determining how many shares are being sought for purchase. Since most mini-tender offers are called something else, such as a “solicitation to purchase shares,” you will have to determine if the number of shares being sought for purchase is less than 5%. Ask for and review the offering document. Ask questions about the bidder’s ability to finance the purchase, since the parties behind mini-tender offers often don’t have the financing necessary to purchase the shares. Find out what the final tender price will be after all fees and expenses are deducted, as some bidders may not clearly disclose certain fees or expenses. Then compare that price against what you would receive if you sold your shares directly on the open market. Ask when you will be paid for the shares tendered. Bidders of mini-tender offers may sometimes delay payment for weeks or months, according to the SEC.

The SEC further cautions that once you agree to participate in a mini-tender offer, you are probably locked in. Unlike traditional tender offers, an investor generally cannot change their mind once they agree to participate in a mini-tender offer, regardless of whether the offer has closed. Furthermore, the bidder can extend the offer period without giving those who have already agreed to participate the option to change their minds and withdraw their shares.

Example of a Mini-Tender Offer

In June 2021, GlaxoSmithKline PLC (GSK) said it had been notified of an unsolicited mini-tender offer by TRC Capital Investment Corp. The mini-tender offer proposed purchasing up to three million American depositary shares (ADSs) of GlaxoSmithKline. If fully subscribed, the offer would represent just 0.1192% of all outstanding shares. This is far below the 5% threshold that would require the filing of regulatory documents.

The offering amount was $37.10 per share. This price was approximately 4.5% below GlaxoSmithKline’s closing price of $38.85 per share on the day before TRC Capital made its mini-tender offer in May.

We at AAII have seen similar mini-tender offers from TRC Capital on stocks held in the AAII model portfolios. None have been in the best interest of existing shareholders. Our suggestion has been, and continues to be, to treat mini-tender offers with a high degree of caution and skepticism.