Tender offers

When tender offer is made to investors, the price offered is normally somehow above the current market price. For example, if shares of a company trade at $8, a tender can be made at $9 in order to motivate investors to give up their shares. There are various reasons for a tender. Some tender offers are made by companies to their shareholders as part of share buyback programs. Here, companies use excess cash to buy back some of their own shares. The rationale is that by reducing the outstanding shares in the market the stock price will go up. When companies retire the bought shares, these become known as Treasury shares. These shares don’t get dividends and can’t be used for voting. When it comes to odd-lot offers, these are made by companies to investors who hold fewer than 100 shares.

There are also tender offers made by outsiders. For example, during a hostile takeover, one company seeks to gain control of the other by buying shares. In addition, some large investors may make such offers to increase their ownership stakes and gain more control of a company. 

Tender offers have deadlines. If not enough shares get tendered, the offering side usually has an option to cancel the entire offer without buying any shares. Often when a tender is made, shares rise close to a tendered price, but not to it, since there is a risk that tender offer will not go through.

Dutch auction corporate actions

In a Dutch auction, usually there’s a limited number of shares to be bought and those willing to sell their shares submit their offers. At first, the lowest offers to sell get their shares allocated to buyers, then remaining shares are allocated to higher offers to sell until all the shares have been allocated to buyers. Every allocated bidder gets shares at the same price, which is the lowest sell price at which last shares were allocated.

Dutch auctions can also happen during IPOs. Then, the first shares are allocated to the highest bidders (buyers), and the remaining shares are allocated to lower bids until all the shares get allocated. Every buyer gets the lowest price at which the shares were allocated. 

Due to uncertainties as to the final price, Dutch auctions come with price limits. For instance, a buyer may specify the highest price he or she is willing to pay. If, let’s say, a buyer wants to purchase 100,000 shares at $10 maximum, and only 60,000 shares are available at this price (or higher), then the Dutch auction can end with a buyer purchasing these 60,000 shares, or being canceled if the desired sum of 100,000 shares isn’t available for sale at $10.

Voluntary exchange corporate actions

Voluntary exchange is also known as optional conversion. It is an offer to shareholders (or bondholders) to exchange one type of security for another. For example, stocks can be exchanged for some other financial instrument or cash.

Rights auctions and rights issues 

During rights auction, the rights to purchase new shares are offered to the highest bidders. In a rights issue, existing shareholders of record are offered rights to buy additional shares at a fixed price. Often, this happens during secondary offerings so existing shareholders can maintain their percentage stakes of company’s ownership. Typically, rights of a publicly-listed company can be sold in the market before their expiration.

Subscription offers

During a subscription offer, the existing shareholders (or bondholders) are given an option to subscribe to a new issue at a predetermined price.

Proxy voting

Common shareholders (with shares that entitle to voting) can participate in proxy voting. This includes voting for the Board of Directors, approving or disapproving management’s proposals, as well as other critical issues. If it’s an annual meeting, shareholders can actually attend it, vote remotely, or via their broker. Brokerage houses inform their clients about such events.

When it comes to mutual funds, portfolio managers get to vote on behalf of their clients. Such custodian rights give large institutional investors some leverage over companies.


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Voluntary Corporate Actions for Equities
With voluntary corporate actions, investors (or their portfolio managers) need to decide which option to choose. Depending on a corporate action, not choosing to respond can result in a default option being automatically selected or in nothing happening (as with some tender offers). Examples of corporate actions that are voluntary are tender offers (including offers for odd lots), rights issues and auctions, share buybacks, proxy voting, Dutch auctions, subscription offers, and voluntary exchanges.

Many individual investors get exposed to voluntary corporate actions