Self-Tender Defense
What Is a Self-Tender Defense?
A self-tender defense is a strategy used by a company to discourage and frustrate a hostile takeover. On the off chance that the management of the company targeted for acquisition doesn't wish to give up its control, they might make a move to try and keep this from occurring by making a tender offer for its own shares.
A tender offer welcomes shareholders to sell their shares at a predetermined cost and inside a specific window of time.
Figuring out a Self-Tender Defense
At times a potential acquirer will make a bid of cash or stock (or a combination of both) to take command of a company that would rather not be dominated. The board of directors of the company might see the offer as underestimating the company — or flat out decline to sell at any price.
However, dismissing the bid may not be sufficient. Sometimes, as opposed to surrender, the closely involved individual could opt to go straightforwardly to the company's shareholders to scrounge up sufficient support to supplant management and possibly get the acquisition approved. Should takeover advances turn hostile — and talks come to this — the target company's board has several options that might make it hard for the prospective buyer to find success.
One option accessible is to buy up shares from existing shareholders (frequently at a premium — or a higher level — to the market price). Going in this direction keeps the possible acquirer from getting its hands on the units of ownership it necessities to take command. The aim of the method of the self-tender defense is to make the cost of securing the company restrictively costly.
By utilizing any cash close by — or raising debt to repurchase a portion of the stock — the target company expands its liabilities and reduces its assets (and ideally, becomes less appealing to the acquirer). Confronted with the present circumstance, the potential acquirer could have to utilize different assets to meet the target company's financial obligations.
Illustration of a Self-Tender Defense
A renowned illustration of a self-tender defense happened in 1985. In April 1985, Mesa Petroleum Co., controlled by very rich person T. Boone Pickens, endeavored a takeover of Unocal Corporation. Plateau Petroleum, which at that stage previously owned roughly 13% of Unocal's stock, increased its determination to take command of its industry rival by sending off a tender offer for 64 million shares, or around 37% of Unocal's outstanding stock, at a price of $54 per share.
Unocal's board met to examine the bid and, with assistance from its advisors Goldman Sachs and Dillon Read, concluded that it shouldn't sell for any under $60 per share. Confronted with the risk of a hostile takeover, and displeased that the second-level of the tender offer was comprised of junk bonds of sketchy value, the company's investment bankers then started introducing defensive strategies for Unocal's executives to consider.
One of the strategies brought up was the option for Unocal to participate in a self-tender defense, buying back its own stock inside a price scope of $70 to $75 per share. Unocal's board was cautioned that seeking after such measures would lead it to bring about generally $6.5 billion of extra debt — and force it to reduce exploratory drilling. In any case, they chose to continue at any rate, safe in the information that spending this money wouldn't risk shutting it of down.
Unocal in the long run pledged to make a self-tender at $72 for all shares (bar those owned by Mesa) when the prospective acquirer hit a certain threshold of ownership. Plateau answered by making a legal move against the defense. Eventually, however, the Delaware Supreme Court, in a generally huge case, found for the target.
Features
- In the event that the target company makes a tender offer, the bidder may be forced to utilize different assets to meet the target's financial obligations; this can make the target company less alluring.
- A tender offer welcomes shareholders to sell their shares at a predetermined cost and inside a specific window of time.
- A self-tender defense is a strategy intended to impede a hostile takeover; in this scenario, the target company makes a tender offer for its own shares.
- By utilizing any cash close by — or raising debt to repurchase a portion of the stock — the target company expands its liabilities and reduces its assets.
