Intermediate4 min readDividends and Corporate Actions · 8/9
Takeover Offers and Mandatory Tender Offers
When someone moves toward control of a listed company, the rules do not leave the other shareholders watching from the side. At certain ownership levels, the buyer must offer to buy from everyone. Here are those levels and who they protect.
What you will learn
Understand what a mandatory tender offer is.
Know the ownership levels that trigger one.
Understand your position as a small holder when an offer arrives.
The lesson as a short video · 20 seconds · Watch on YouTubeIn this lesson
A tender offer is when someone announces they want to buy a listed company's shares from its holders at a set price, and each holder decides whether to sell. Sometimes the offer is the buyer's own choice, and sometimes the Capital Market Law regulations require it. That is a mandatory tender offer, and its purpose is that whoever moves toward control gives the other shareholders a chance to exit.
The levels that trigger an offer
Article 353 says that anyone seeking, alone or with related parties, one third of the capital or of the voting rights or more must notify the Financial Regulatory Authority and submit a draft offer for all the securities. Above one third, further levels follow the same idea.
One thirdReaching it or more: notify the FRA and offer for all
Between two levelsA rise of more than 5% in 12 consecutive months = mandatory offer
Half, then two thirds, then three quartersReaching any of them at any time = mandatory offer
Above three quartersNo new obligation, subject to minority protection at 90%
A summary of Article 353. The details and exceptions are in the regulation itself.
ExampleAn investor owns 40% of an invented company, Al Wadi Contracting. Buying another 4% in a year takes him to 44%: the rise is not above 5% and he has not reached one half, so no mandatory offer follows from it. But buying 6% within 12 consecutive months, or reaching 50% at any time, requires a mandatory offer.
And you, as a small holder?
The priceArticle 354 says the mandatory offer price may not be below the highest price the offeror or related parties paid in an earlier offer during the previous 12 months.
If the company stays listedThe offer covers all shares minus the minimum that must remain for the listing. If holders tender more than is sought, everyone is bought from in the same proportion, with fractions rounded in favour of small holders. For example, an offer for 20 million shares receiving 30 million: each seller has about two thirds of what they tendered bought.
If the offeror wants to delistThe offer must cover all of the company's securities.
At 90%Once a holder reaches 90% or more, Article 357 lets minority holders meeting certain conditions ask the FRA to require an offer for their stakes.
Watch outNot every change of ownership triggers an offer. Article 356 exempts some cases after notifying the FRA, such as inheritance, bequests, gifts and transfers between parents and children. Read the deal's disclosure before assuming an offer is coming.
Follow the disclosures
Tender and takeover news is published as disclosures. Open the disclosures page and find one about a tender offer: who is making it, for what percentage, and at what price.