Beyond the Tender Offer Price: Purchase Limits, Proration, and Settlement Terms
Check minimum quantities, oversubscription, settlement dates, and the return of unpurchased shares before treating a tender offer premium over the market price as guaranteed profit.
A tender offer is an offer to buy shares during a specified period on stated terms. Even if the offer price exceeds the current market price, whether you can sell your entire holding at that price depends on the quantity conditions and tender procedures.
Distinguish the target purchase quantity from the minimum quantity
Read the conditions in the tender offer filing to see whether all tendered shares will be purchased if the target is not reached, or whether the transaction requires a minimum quantity. For oversubscription, also distinguish buying all shares from prorating purchases up to the target quantity. Actual Korean tender offer disclosures include terms providing full purchase when undersubscribed and proportional allocation when oversubscribed, but these must not be generalized to all tender offers. Check the filing and applicable rules for conditions allowing the bidder to amend or withdraw the offer.
Calculate the price spread separately from actual cash receipts
If considering buying in the market and tendering the shares, the purchase price, acceptance ratio, value of remaining shares, costs, and taxes all matter. Valuing unpurchased shares at the tender offer price can overstate profit. Expectations of a competing bid or a price increase may already be reflected in the market, and the price may change after the offer closes. Also distinguish an offer intended to stabilize control from one intended to pursue delisting. Participating in a tender offer does not itself establish that delisting will occur.
Check procedures between the deadline and settlement
Consult the actual offer document for the managing securities firm's account requirements, share transfers, tender and cancellation methods, and closing time. Holding shares does not mean they are automatically tendered. The tender deadline and cash payment date can also differ, so align settlement with other investment or spending plans. Check how shares not purchased because of proration will be returned and when they can be traded. Finally, recheck price, quantity, and timetable using the final amended materials rather than the original announcement. The offered price may differ from the after-tax amount received. Tax treatment may vary with the transaction structure and investor's status, so consult the tax guidance in the offer document and your own circumstances rather than applying one tax rate universally.
Worked example
Hypothetical example: You buy 100 shares at KRW 10,000 each and tender them into an offer at KRW 12,000, but only 60 shares are purchased. You receive KRW 720,000. Selling the remaining 40 shares at KRW 9,000 brings in KRW 360,000, for a total of KRW 1.08 million. Against the initial investment of KRW 1 million, profit before costs and taxes is KRW 80,000, rather than the KRW 200,000 profit if all shares had been accepted.
What to check
- Check purchase methods and quantities for undersubscription and oversubscription.
- Check the tender account, cancellation process, and deadline procedures.
- Consider the return of unpurchased shares and their price risk.
- Verify the final amended price and actual settlement date.
Sources and primary materials
This is educational material about research methods. For an actual company decision, verify the filings and primary sources for the relevant period.