A mini-tender offer is an offer made by a company to buy back its own shares or to purchase shares of another company, but the catch is that the offer is for less than 5% of the company’s total stock. The term “mini” comes from the fact that these offers circumvent many of the U.S. Securities and Exchange Commission (SEC) rules and regulations that apply to larger, or “full,” tender offers.
Mini-tender offers often target individual investors. The bidders might offer a price that is below the current market value, hoping that uninformed shareholders may not notice this and sell their shares at this lower price.
The SEC has issued investor alerts about mini-tender offers because they have been used in the past to deceive shareholders. The SEC regulations that apply to larger tender offers – such as the requirement to disclose important information to shareholders – do not apply to mini-tender offers, creating an opportunity for unscrupulous bidders to mislead investors. The SEC advises shareholders to be cautious and to scrutinize mini-tender offers closely before deciding to tender their shares.
Example of a Mini-Tender Offer
Suppose Company A’s stock is currently trading at $50 per share on the open market. An entity (which could be an individual, a corporation, or another type of organization), let’s call them Bidder B, decides to conduct a mini-tender offer.
Bidder B offers to buy up to 4.9% of the company’s shares directly from the shareholders at $48 per share. The offer is publicized directly to the shareholders, bypassing the company’s management.
Seeing the offer, some uninformed shareholders might think, “This is a guaranteed $48 for my shares, whereas the market price could go down tomorrow.” These shareholders may then decide to sell their shares to Bidder B at $48, not realizing they could have sold them on the open market for $50.
In this way, Bidder B hopes to acquire shares at less than their market value. This example illustrates why it’s important for shareholders to carefully consider the terms of any mini-tender offer and compare the offer price to the current market price before deciding to sell their shares.