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What Is a Tender Offer in Stocks and What Would One Mean for TWTR?

Over the weekend, Twitter’s (NYSE:TWTR) board of directors enacted a poison pill plan. The plan allows Twitter to give existing shareholders the right to purchase shares at a discount. This plan will be triggered if an entity purchases at least 15% of TWTR stock without the approval of the board. In other words, it’s very clear that Twitter’s board does not want Elon Musk to acquire the company.

Twitter (TWTR) app being shown on a phone screen held in a person's hand.
Source: Worawee Meepian / Shutterstock.com

Despite the board’s disapproval, Musk has stated himself that he has a “Plan B.” On Saturday, Musk then tweeted out “Love Me Tender,” a reference to Elvis Presley’s 1956 hit song.

However, investors are speculating that Musk was actually hinting at a tender offer for his Plan B. So, what exactly is a tender offer?

What Is a Tender Offer?

A tender offer is an offer to a company’s shareholders instead of the board. The offer is usually priced significantly above the current market price. These offers typically look to acquire stock from shareholders at a specific price and within a specified period of time. The acquirer does this in order to own a majority stake in the target company.

In the case of a takeover attempt, which Musk may choose to pursue, the offer may be conditional “on the prospective buyer being able to obtain a certain amount of shares.” In addition, the acquirer does not need the board’s approval to enact a tender offer.

An advantage of a tender offer is that the acquirer does not need to raise money right away. Rather, the acquirer can wait to buy shares “until a set number is tendered.” Acquirers can also enact escape clauses, which would remove liability from buying shares under certain circumstances. A disadvantage is that acquirers must pay associated fees to parties such as the U.S. Securities and Exchange Commission (SEC), attorneys and depository banks.

What Would a Tender Offer Mean for Twitter?

In order for a tender offer to be successful, the acquirer must purchase a certain amount of shares from willing shareholders. In the case of a successful acquisition, Musk tweeted out that he would reduce the board’s salary to $0, which he said would save roughly $3 million per year. Additionally, Twitter would likely experience a major change in leadership, employee count and internal operations.

Board member and former CEO Jack Dorsey seems to be on Musk’s side. He tweeted that the board has “consistently been the dysfunction of the company.” Dorsey’s term on the board expires this May.

On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Eddie Pan specializes in institutional investments and insider activity. He writes for InvestorPlace’s Today’s Market team, which centers on the latest news involving popular stocks.

Article printed from InvestorPlace Media, https://investorplace.com/2022/04/what-is-a-tender-offer-in-stocks-and-what-would-one-mean-for-twtr/.

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