Why do companies who want to acquire a target company, go for tender offer & want to pay a premium to the existing shareholder, when they can just buy the required quantity without premium FROM the open market?

Question

title

In: Economics

Answer 1

Imagine a large building with 1000 flats in it, and high turnover in tenants.

If you want to buy one flat, there a good chance that several are available, so you can easily buy one.

If you want to buy ten, you can buy then ones that are being sold, and then wait a couple months to progressively buy new ones being sold.

If you want to buy half the building, it doesn’t work. Maybe more than half the building are families that don’t intend to move out and sell any time soon. Your only chance is to tell people that you’re buying at +30% compared to the market, on the condition that you get offers to 500 flats at that price.

Works the same with shares of a company.