What it means
A tender offer is a public offer to buy shares directly from shareholders, usually at a price above the market. In a Saturday night special, the bidder would announce the offer with almost no warning and set a deadline of only a few days.
Shareholders had to decide quickly, and the offer often applied to the first shares tendered, which pressured people to act before they could be fully informed. The name suggests a deal launched when markets were closed and the target's management had the least chance to react.
The bidder might already own a stake, have lined up financing and be ready to take control before the board could find a rival bidder or organise a defence. For the target, the surprise was the weapon.
Concern over these tactics led to regulation. In the United States the Williams Act of 1968 introduced disclosure rules for tender offers and large share purchases, and requirements for how long an offer must stay open and how shareholders are treated.
Over time the rules made the Saturday night special largely obsolete in its original form. Understanding the idea still helps, because it shows the tension in takeovers.
Shareholders may enjoy a premium, but without time and information they cannot judge whether the price is fair. Boards in turn have a duty to evaluate offers carefully and, where appropriate, seek alternatives.
Modern defences such as shareholder rights plans, staggered boards and requirements to seek advice emerged partly in response to such tactics. The legal details differ by country and have changed over the years, so check the rules that apply today before relying on any description.
Note that the same phrase is also slang for a cheap handgun. In finance it refers only to the takeover tactic.
In practice
Real-world examples.
Example
A conglomerate announces on a weekend that it will buy shares in a manufacturing company at a 25% premium, with the offer open for only a few days. The manufacturer's board has little time to find a rival bidder, call its advisers or explain the situation to its shareholders.
Example
A corporate lawyer teaching a course on takeover law uses the Saturday night special as a case of why disclosure and minimum offer periods were introduced. Students compare the old tactic with the modern process, in which the offer must stay open for a minimum period and the bidder must file detailed information.
Example
A pension fund holding shares in a target company receives an urgent tender offer and must decide by a short deadline. Its investment committee asks for independent advice because the premium looks attractive but the information supplied is limited.
Formula
Calculation
Offer Premium = (Offer Price - Pre-Offer Market Price) / Pre-Offer Market Price x 100
Total Cost to Bidder = Offer Price x Number of Shares Acquired
Worked example for a fictional target: the shares trade at $24, the bidder offers $30 per share, and it seeks to buy 5,000,000 shares.
Offer Premium = ($30 - $24) / $24 = $6 / $24 = 0.25 = 25%
Total Cost to Bidder = $30 x 5,000,000 = $150,000,000
If the bidder had to pay only for the shares actually tendered and just 3,000,000 shares were offered, its cost would be $30 x 3,000,000 = $90,000,000.Case study
Seen in the real world.
Anchorage Steelworks is an illustrative, fictional company whose shares traded at $24 on a Friday. A larger rival, Delta Forge, announced on Saturday that it would buy up to 5,000,000 shares at $30 each, with the offer closing the following Wednesday.
Anchorage's board had no defence prepared and only four days to respond. Many shareholders, nervous that the first shares tendered would be taken first, sent in their shares quickly without waiting for the board's recommendation.
In this illustrative story the episode led the board to adopt a standing defence plan and to appoint advisers on retainer. Directors also agreed to review the plan every year, so that a future surprise bid would meet a prepared response. The managers also pushed for clearer rules on offer timing, which in real markets later emerged through regulation.
Watch out
Common mistakes.
- Assuming a Saturday night special still works today in its original form, when modern rules require longer offer periods and fuller disclosure.
- Believing the premium alone makes an offer fair, without checking the shares' underlying value.
- Confusing the takeover term with the unrelated slang use of the same phrase.
Questions
People also ask.
What is a tender offer?
It is a public offer to buy shares directly from shareholders, usually at a premium to the market price and for a limited period.
Why was the tactic controversial?
It gave shareholders and boards little time or information, and it pressured holders into accepting before they could compare alternatives.
What changed the practice?
Securities laws, such as the Williams Act in the United States, added disclosure duties and minimum offer periods, and companies adopted defences.
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