Whenever a company issues a “tender offer” to its shareholders, many new retail investors are clueless on what do to inspite of the announcement made by their the company through their stockbrokers.
But what is a tender offer?
A tender offer is an offer by the company to purchase some or all of shareholders’ shares in a corporation by direct means and not by purchasing them on the open market.
3 Reasons Why You Should Accept A Tender Offer
There are investors who are quite attached to a certain stock or company that they find it difficult to let go of their shares even if the stock is ripe for the selling. The same thing is true when there is a tender offer.
However, a shareholder must realize that not accepting a tender offer by the company may not be a very smart idea at all.
Here are some of the reasons why.
1) You may be not be able to sell your shares at your desired price.
There may be less trading activity for that particular stock with a tender offer.
You may not be able to sell your stock at the price higher than when you bought it especially if you purchased it just recently.
In the case of *LRI (LaFarge Republic, Inc.) shareholders who purchased shares in the late part of January 2015 at Php11.90 or even at Php12.00, selling their shares at the same price may not be possible anymore. The current market price is last traded at Php10.12 only.
* LRI has been acquired by AEV CRH Holdings, Inc.
2) Tender offers are usually made to shareholders higher than the current share prices.
The misery may not be too miserable at all if you fail to sell at your desired price.
However, if you are a shareholder in a company that is going private or voluntarily delisting and has purchased the stock recently, you will definitely gain by accepting the offer and selling the stock at the offered price.
The price offered per unit of stock is usually at a premium or above the current market price. Having LRI again as example, its tender offer is Php10.26. This is definitely higher than the current market price of Php10.12.
You might as well just let go and enjoy the ride.
3) Publicly-listed companies may choose to become private.
Another popular term for this is “delisting”.
Many companies make voluntary delisting to minimize or avoid strict compliance with SEC regulations that are imposed upon publicly-traded companies. Others choose to become private when majority of their shares are acquired or taken over by another company.
If you fail to accept the tender offer of a company that is going to be delisted, you will have a hard time selling your shares to the company and to the public when it has finally become private.
In fact, you will not be able to find the same stock and its stock code in your stockbroker’s list of companies any longer. Your shares will become very illiquid.
You may have to seek the assistance of a lawyer or a reputable CPA to help you out in selling your shares to the delisted company or to other interested parties.
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