What is the difference between tender offer and market offer?

What is the difference between tender offer and market offer?

The primary difference between tender offer and open market offer lies in how companies execute share buybacks. Let's delve into these concepts with examples:

Tender Offer Share Buyback:

In a tender offer share buyback, a company directly invites shareholders to submit their shares for repurchase at a predetermined fixed price. This offer is made to shareholders on a one-to-one basis. Shareholders decide whether to accept the offer and sell their shares back to the company at the specified price.

Example: Company A announces a tender offer share buyback at ₹50 per share. Shareholders who are interested in participating can submit their shares at this fixed price, and the company will buy back the shares directly from them.

Open Market Share Buyback:

In an open market share buyback, a company initiates the buyback through the stock market. The company repurchases its own shares from the open market, just like any other investor would. The company sets a maximum price it's willing to pay for its shares, and the actual purchase price can vary based on market conditions.

Example: Company B plans an open market share buyback. The company sets a maximum purchase price of ₹60 per share. The company's designated broker purchases share from the market at prevailing market prices, which can be anywhere between the current market price and the maximum price set by the company.

In summary, the main contrast between these methods is in the way shares are repurchased. A tender offer involves a direct invitation to shareholders to sell their shares at a fixed price, while an open market offer entails the company buying back shares from the open market at market-driven prices.

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