If you’re new to investing in the UK or Europe, and one of your companies is announcing a mandatory tender offer, you’re probably asking what the heck is going on.
Usually, in the US, tender offers involve a company tendering for its own shares or a 3rd party making a bid for your shares – but none of this is mandatory.
So what gives? Are you obligated to sell your shares if the tender goes through?
Let’s walk you through this…
What is a Mandatory Tender Offer?
A Mandatory Tender Offer (MTO) is a critical mechanism designed to safeguard minority shareholders during significant ownership changes in publicly listed companies. An MTO obligates an acquirer to offer to buy the remaining shares of a company after acquiring a substantial stake, typically crossing a predefined threshold like 30% or 50% of voting shares, depending on local regulations. This ensures fairness and transparency in the market when control shifts.
Note that the obligation is not on you, dear shareholder. The obligation is on the acquirer to make an offer to you to keep everything fair during the acquisition process. As a minority shareholder, you get the option but not the obligation to sell your stock to the big fish.
The process kicks in when an entity or individual triggers the threshold, compelling them to extend a formal offer to purchase all or part of the outstanding shares at a specified price — often at a premium to the current market value. This makes the scenario a potentially attractive play to special situations investors.
For example, if Company X acquires 40% of Company Y (assuming a 30% trigger), an MTO might require X to offer to buy the remaining 60% from other shareholders at a 10% premium to the current stock price. This spread (the share price + 10%) might provide special situation practitioners with a nice arbitrage opportunity to exploit if the gap doesn’t close.
Regulatory bodies, such as the U.K.’s Takeover Panel or the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) in Germany (try saying that 10x fast!), oversee the terms, pricing, and timeline to protect shareholders from being sidelined by a new controlling party. The goal is to give minority investors an exit option at a fair valuation.
What’s key in understanding these situations is learning about how the law applies in each individual jurisdiction – and this can get really complicated really fast.
Can You Refuse to Sell Your Shares In a Mandatory Tender Offer?
Yes, you can refuse to sell your shares in a mandatory tender offer – participation is usually voluntary. While the acquirer is obligated to make the offer, shareholders are not forced to accept the offer.
Refusing a tender does carry risk, though. If the acquirer gains majority control, minority shareholders might face reduced influence or liquidity. They may also have less oversight of what’s happening in the company, as the majority owner can stack the board with people loyal to him/her/it.
In rare cases, “squeeze-out” rules could later compel sales if ownership exceeds a high threshold (maybe 90% in some cases), but this depends a lot on local laws.
What Are Some Examples of Previous Mandatory Tender Offers?
You can find examples of recent mandatory tenders, but they’re all outside of the US since mandatory takeovers do not really apply in the United States. You typically find them in Europe, and I think this is a good few examples to look at:
- Piraeus Bank and Geniki Bank (Greece, 2013)
On March 1st, 2013, Piraeus Bank launched an MTO to acquire the remaining shares of Geniki Bank after increasing its stake beyond Greece’s regulatory threshold. This followed Piraeus’s earlier acquisition of a controlling interest, obligating it to offer minority shareholders a buyout at a fair price, as required by Greek law, ensuring their protection during the change in control. - ZTE Cooperatief and Netas (Turkey, 2017)
On August 7th, 2017, ZTE Cooperatief submitted an MTO application to Turkey’s Capital Markets Board after acquiring a significant stake in Netas, exceeding the 30% threshold under Turkish regulations. The offer aimed to purchase remaining shares, reflecting the mandatory bid rule’s intent to balance control premiums with minority shareholder rights. - Tibergest and Photo-Me International (UK, 2022)
On January 21st, 2022, Tibergest PTE Ltd, wholly owned by Photo-Me’s CEO, announced an MTO for Photo-Me International PLC after acquiring a 7.7% stake, pushing its total ownership with the CEO to 36.5%. Under the UK Takeover Code’s 30% rule, this triggered a cash offer for all remaining shares, though it lapsed on March 8th, 2022, due to insufficient acceptances.
So, not all mandatory tender offers are executed, but at least shareholders get the option.
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