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

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In: Economics

Answer 1

There might not be enough supply at the current market price, so a premium is needed to entice shareholders.

Attempting to buy a large number of shares on the open market can drive up the share price even higher. It can also cause the company to take defensive measures (e.g. poison pill and the crown jewel defense).

A premium can convince shareholders to approve a mutual deal which would mean the acquirer can purchase all of the shares at an agreed price.