Mini-Tender

What Is a Mini-Tender?

In finance, the term “mini-tender” refers to an offer made to purchase the shares of a group of investors. Specifically, it is an offer to purchase no more than 5% of the stock of a company. The 5% threshold is critical, because any offer to purchase more than 5% of the stock would trigger a variety of regulatory requirements overseen by the U.S. Securities and Exchange Commission (SEC). By staying under this threshold, mini-tender offers can avoid regulatory scrutiny. Accordingly, they are sometimes treated with suspicion by investors.

The offer is typically made by an outside party, who may not have the approval of the company’s management for making the offer. In this sense, a mini-tender offer can be seen as a method for carrying out a hostile takeover.

How Mini-Tenders Work

Oftentimes, offers made through a mini-tender will be viewed by suspicion by investors. Mini-tender offers are not required to follow the standard SEC regulations that generally apply to takeover attempts. For example, mini-tender offers do not need to file detailed prospectus documents with the SEC, nor do they permit shareholders to withdraw from the deal retroactively.

Depending on the details of the proposed mini-tender, the purchaser of the shares might offer cash, or some combination of cash and another security. In many cases, so-called “exchange offers” are used, in which the purchaser offers to exchange other shares for the shares being solicited through the mini-tender. One of the risks that applies to this situation is that the shareholder accepting the mini-tender may fail to assess whether the securities being received in this transaction are sufficiently liquid to be useful to them. 

For example, if the shares received are invested a very thinly-traded company, then there may not be any practical way to sell those shares and convert them to cash. For investors who rely on their portfolios for their retirement income (specifically older investors), this type of exchange can be quite damaging.

The SEC has warned investors against the risks associated with this type of offer. Investors should ensure that they carefully study the details of any mini-tender offer they receive, while always keeping in mind that the standards of regulatory scrutiny that would apply to larger tender do not apply to them.

Real World Example of a Mini-Tender

Emma is a retiree who relies on income from her stock portfolio to fund her living expenses. Her stock portfolio is carefully tailored to provide low volatility, high liquidity, and high dividend yields.

One day, she receives a notice in the mail from a company called XYZ Investors, offering to purchase her shares in one of her largest holdings. The buyer’s offer mixes cash with an exchange offer in which she would ostensibly receive stock with a higher dividend yield. Attracted to the yield and the influx of cash, Emma accepts the proposal and sells her shares.

Months later, however, Emma realizes that she did not do adequate due diligence. What she failed to realize is that her newly-obtained shares have a very thin market, meaning she is unable to sell them at a reasonable price or in a short timeframe. In hindsight, she would have preferred keeping her older shares, which offered a reliable and liquid market.

Emma was also confused by the format of the letter. Given its professional and impressive appearance, she had assumed that the offer had been vetted either by the company’s management team or by the SEC. She did not understand that because it was a mini-tender offer, it bypassed the regulatory scrutiny associated with larger offers.