Tender Offers: SC TO-T, SC TO-I, Schedule 14D-9 and Going-Private 13E-3

The short version

A tender offer is a public offer to buy securities directly from holders, usually at a fixed price above the market, for a limited time. Instead of buying shares on the exchange, the buyer asks holders to "tender" them.

Tender offers are filed on Schedule TO. A bid by an outside party is an SC TO-T (third-party). A bid by a company for its own securities is an SC TO-I (issuer). When an outside party bids, the target company must respond on Schedule 14D-9. If the offer is part of a going-private transaction by insiders or affiliates, a Schedule 13E-3 adds disclosure about fairness.

The form types you will see

The offer document itself, the offer to purchase, is filed as Exhibit (a)(1)(A) to the Schedule TO. That is where the price, conditions and timetable live.

The timetable rules

Regulation 14E applies to tender offers generally, and it sets the clock:

• Minimum 20 business days open. Rule 14e-1(a).
• 10 more business days after a change in price or in the percentage sought. Rule 14e-1(b). A bump in price usually extends the offer.
• Prompt payment or return of securities after the offer ends. Rule 14e-1(c).
• Target response within 10 business days of the offer starting, stating whether it recommends acceptance, rejection, neutrality, or cannot take a position. Rule 14e-2.

For offers covered by Regulation 14D (third-party offers for registered equity that would leave the bidder with more than 5%) and Rule 13e-4 (issuer offers), holders also have withdrawal rights while the offer is open, and the all-holders and best-price rules require the offer to be open to all holders of the class at the highest price paid to any of them.

Issuer tender offers and proration

Companies use SC TO-I offers to buy back stock, to retire debt, or to restructure warrants. A common buyback format is the modified Dutch auction: the company names a price range, holders say how many shares they would sell at which price, and the company picks the lowest price that lets it buy the number of shares it wants. Everyone whose shares are accepted is paid that same price.

If more shares are tendered than the company wants, it buys pro rata.

Offers often give odd-lot priority, buying all shares from holders who own fewer than 100 before prorating everyone else. The offer to purchase states the exact rule.

Warrant tender and exchange offers

For small caps, the most relevant SC TO-I is often not a buyback but an offer to holders of warrants. A company with a large warrant overhang can offer to exchange each warrant for a fraction of a share, or for cash, to simplify its capital structure.

Hypothetical example: Company X has 10,000,000 public warrants with a $11.50 exercise price, far above a $2.00 stock price. It offers 0.25 shares per warrant. If all are tendered:

All figures are hypothetical.

The basic share count rises 8.3% (2,500,000 ÷ 30,000,000), while the fully diluted count falls 18.75%. Such offers are sometimes paired with a consent solicitation to amend the warrant agreement so that untendered warrants can be converted on less favourable terms. The offer document describes both.

Third-party offers and the target's response

A third-party SC TO-T is commonly the first step of an acquisition: the buyer offers cash for all shares, conditioned on a minimum number being tendered, and then completes a second-step merger to squeeze out the remainder. Under Delaware's Section 251(h), a merger can follow a tender offer without a shareholder vote if the bidder obtains enough shares to approve the merger.

The Schedule 14D-9 is the target's side. Read it for:

• The board's recommendation and reasons.
• The background of the offer, a narrative of negotiations that often names other bidders by letter ("Party A").
• Financial advisor's opinion summary and the analyses behind it.
• Arrangements with insiders, such as change-in-control payments.

Tender offers for less than 5% of a class, known as mini-tenders, are not subject to Regulation 14D. They are often priced below the market, and the SEC has warned holders to read them carefully.

Going private: Schedule 13E-3

Rule 13e-3 covers transactions by an issuer or its affiliates that would cause a class of equity to be held of record by fewer than 300 persons, or to be delisted or deregistered. Management buyouts and buyouts by a controlling holder are the typical cases.

A Schedule 13E-3 is filed alongside the tender offer or proxy and adds disclosure that an ordinary deal does not require, most notably the filer's statement on whether the transaction is fair to unaffiliated holders and the factors behind that view. Any report or opinion from an outside party relating to fairness must be summarised and filed. After completion, the company may file a Form 25 to delist and a Form 15 to deregister, after which its SEC reporting can stop.

How to check a company on Signal8

• Filter the live SEC filings feed to Schedule TO and 14D-9 filings to follow open offers.
• A company's filings tab, for example AAPL's, shows any tender offer statements and amendments in date order, including the final results amendment.
• The market calendar helps place offer expiration dates next to other scheduled events.

FAQ

How long must a tender offer stay open?

At least 20 business days from the date it starts, under Rule 14e-1(a). If the bidder changes the price or the percentage of securities sought, the offer must remain open for at least 10 business days after that change is announced. Offers are frequently extended beyond these minimums, and each extension is disclosed in an amendment to the Schedule TO.

What is the difference between SC TO-T and SC TO-I?

SC TO-T is filed by a third party making a tender offer for another company's securities, such as an acquirer bidding for a target. SC TO-I is filed by a company making a tender offer for its own securities, for example a share buyback, a debt repurchase, or a warrant exchange offer.

What is a Schedule 14D-9?

It is the target company's response to a third-party tender offer. Within 10 business days of the offer starting, the target must state whether it recommends that holders accept or reject the offer, remains neutral, or cannot take a position, and explain why. It also describes the negotiation background and any arrangements with insiders.

What happens if more shares are tendered than the buyer wants?

The buyer accepts shares on a pro rata basis. It divides the number of shares it wants by the number tendered and applies that factor to each holder's tender, returning the rest. Many offers buy all shares from odd-lot holders, those owning fewer than 100 shares, before prorating.