Stock options are a well-understood topic between companies and employees. But what if the company isn’t public? Can there be equity incentives if the company is not public? Companies are tending to stay private for longer which can be startling to employees and investors with stock options. That is where tender offers come in.
Shares that are held by employees or investors can not be sold until the company goes public. Tend offers are the way around this, allowing shareholders to control their equity in the company early on.
A tender offer is a company-held event where multiple shareholders can sell their shares, either to the company or to investors. All parties involved; sellers, buyers, and the company, benefit from tender offers.
There are many kinds of tender offers but in this context, there are two; issuer tender offers and third-party tender offers. When a company (or investor) makes an offer to buy stock shares is a third-party tender offer. An issuer tender offer is when a company makes an offer to buy back shares from shareholders.
The details are set by the company so how a tender offer works may vary. Generally, an offer is made by a buyer for a specific share price and minimum shares. The company will then confirm the offer price with the board of directors. Lastly, a period of time is set for the sale of shares at the given price.
This sounds pretty straightforward but some rules and regulations come along with tender offers as well. For participating in a tended offer, the company will set qualifications. An example of this could be holding the shares for a given amount of time. It is important to a company that participants in a tender offer align with the company incentives so they limit how many shares can be sold in a tended offer.
For more information, check out Equa's blog.