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Mini-Tenders

Approach Mini-Tenders with Caution

We are concerned that investors might be selling stock at below-market price based on misleading information, reminds investors to carefully review any offer for their shares. Firms or individuals who seek to buy shares at below-market price should warn shareholders that the offer price is below the market price and clearly calculate the final price to be paid for the shares. In addition, they should describe investors’ right to withdraw from the offer, known as a mini-tender.

How do mini-tenders work?

Shareholders receive an offer for their shares, usually at a price that is much lower than the market price of the shares. The mini-tender offeror tries to buy less than 20% of the target company’s shares so they don’t have to file documents with the securities commissions or communicate with shareholders. They profit by selling the shares on the open market at a higher price.

Mini-tenders should not be confused with take-over bids which involve larger numbers of shares. Once you agree to a mini-tender you are normally locked into the deal, but in a take-over bid you may be able to change your mind. Another difference between mini-tenders and take-over bids is that the target company doesn’t need to tell its shareholders about the mini-tender offer. In a take-over bid the company must notify all shareholders.

What are the risks?

You may misunderstand the offer and feel pressured to sell the shares at the offer price or not realize that the offer price is lower than what you could get by selling the shares on the open market. Offerors that rely on such misunderstandings may be violating the anti-fraud provisions of federal securities laws. The offeror can terminate its offer at any time, delay payment for the shares and change the offer. They may decide not to buy the shares at the last minute. Mini-tenders usually benefit the offeror at the expense of investors.

Why would anyone participate in a mini-tender?

You might participate to avoid brokerage commissions that would make selling the shares very costly, such as when you sell a small number of shares or when the shares are hard to sell. Check with your adviser to see if a mini-tender is in your best interests.

Some tips:

Understand how it works, before you sign. Is the offer a mini-tender or a take-over bid? Check the market price of your shares. Compare the market price with the offer price.

Don't give in to high pressure sales tactics.

Research the offer and the current value of your shares.