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Virtual General Counsel LLC

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How can a business in Colorado counter a “tender offer”?

| Dec 3, 2018 | Mergers & Acquisitions |

It is not unusual for small businesses in Colorado to be interested in growing their enterprise. One way to do this is through a merger and acquisition. There are a variety of types of mergers and acquisitions. One type of acquisition is a “tender offer.”

A tender offer is a type of acquisition wherein one corporation submits an offer to purchase another corporation’s outstanding stock. Shareholders are made aware of the tender offer through advertisements and mailings. A tender offer is a means for one corporation to acquire another, via having a controlling interest in the corporation through corporate shares, while bypassing the management of the corporation being acquired.

However, the company being acquired through a tender offer still has options. For example, if shareholders and management approve of the acquisition, the offer can simply be accepted. Or, if the price being offered is insufficient in the eyes of the shareholders, then the management of the target corporation can try to negotiate more satisfactory terms.

Another option that might be available is executing a “poison pill.” This is a strategy in which the target corporation gives all its shareholders — minus the corporation trying to acquire it — the option to purchase significantly cheaper additional stocks. This lowers the acquiring corporation’s interest in the business and, thus, the amount of control it has over the target corporation.

Finally, the target corporation can try to find a “white knight.” A white knight is another acquiring corporation who is willing to purchase the target corporation’s stock for an amount higher than what the original acquiring corporation offered in the tender offer. This may make for a friendly acquisition, rather than a hostile takeover.

Any of these strategies might be useful in the right situation, but in the end mergers and acquisitions are complex legal transactions. The value and viability of both businesses are at stake, especially if one or both businesses is a small business. If not executed with all the proper legal formalities, a merger or acquisition can fail, possibly leaving both parties in a worse off position.