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Flashcards in Chapter 6.3 Deck (11):

Tender Offers

A formal proposal to stockholders to sell their shares in response to a large purchase bid. The company initiating the tender offer normally assumes all costs and reserves the right to accept all, none, or a specific number of shares presented for acceptance.


In order for a person to legally tender shares, they must own the security to be tendered. Under SEC rules, a person is deemed to own a security if the investor:

-Investor or agent has title to it
-Has purchased the security, or has entered into an unconditional contract to purchase it but has not yet received it
-Owns a security convertible into or exchangeable for it and has tendered such security for conversion or exchange
-Has an option to purchase or acquire it and has exercised such option
-Has rights or warrants to subscribe to it and has exercised such right and warrants


If a person is short-against-the-box and wishes to sell the long side of the position, what must the investor do?

They would have to execute the sale as a "Short" sale.

-Shorting against the box means that the individual is long and short the same amount of the same stock at the same time.


If a person is short-against-the-box and wishes to tender the long side of the position, he would be required to do what?

First cover the short. The same rule would be true if the person was long the stock and had written call options against the long stock position.

**Only net long positions may participate in tender offers.


The following types of tenders would be legal

-A custodian tendering shares from an account managed under the UGMA
-A trustee tendering shares from a trust account
-A person tendering his own shares either fully paid or from a margin account, even if the margin account is restricted. By tendering shares from a margin account, a person is reducing the risk associated with the account by turning shares into cash.

**Illegal tender would occur when an investor tenders shares that were borrowed through a short margin account. The person does not own the shares and, therefore, cannot tender them.


Tender offer Disclosure

A company that is the target of a Tender offer must disclose to its shareholders its position on the Tender Offer no later than 10 business days from the date of the Tender Offer.


When member firm obtains a list of a company's bondholders or shareholders due to a Tender Offer, the list can be used for what?

Can only be used in relation to the Tender Offer and not for any other purpose, unless the member firm receives permission from the issuer.


How long must a tender offer remain "Open"?

For at least 20 business days from the day the tender offer is announced.
-If the bidder changes any of the terms of the offer, the offer must remain open for 10 business days from the date of the revision.
-When a tender offer is changed or extended, a public announcement is required no later than 9 a.m. on the business day after the date the original offer is due to expire.


An insider of a company which has initiated a tender offer of another company's common stock would only be allowed to purchase what in their own personal account?

Purchase non-convertible bonds of the target company for their own personal account?


What happens when one B/D is owed securities by another B/D and those securities are subject to a corporate action such as a Tender Offer, what will happen?

The owed B/D will send a liability notice to the other B/D which holds the owing B/D liable for the delivery of the securities in time for the owed B/D to participate in the tender or corporate action.


Fairness Opinions

A "fairness Opinion" written by a member firm expresses a conclusion as to whether the consideration offered in a transaction such as a merger, sale, or purchase of assets is "fair". Disclosures required by a member firm in a fairness opinion include:
-If the firm acted as financial advisor to any party to the transaction subject to the opinion
-If the firm will receive any significant payment or compensation contingent on successful completion of the transaction
-If the firm has any material relationships that existed during the last 2 years or that are mutually understood in which any compensation was or is to be received as a result of the relationship between the firm and any party to the transaction
-Whether or not the firm has independently verified information received with regard to the transaction and the procedures followed in arriving at their findings
-Whether or not the firm's fairness committee approved or issued the fairness opinion
-Whether or not the fairness opinion expresses an opinion about the fairness of compensation to insiders

**Fairness opinions do not have to disclose if the firm is a market maker in the security
**Fairness opinions cannot give advice about how shareholders should vote or what action should be taken by the shareholders.