What is a Creeping Tender?

A creeping tender happens when someone wants to buy a big company but does it slowly, piece by piece. Think of it as quietly purchasing small amounts of a company’s shares over time instead of trying to buy the whole thing at once. The buyer keeps getting more shares until they own enough to make a big offer for all the remaining shares.

How Does it Work?

The buying group starts small. They buy shares through regular stock market trades without telling anyone about their bigger plans. They might buy 2% this month, another 3% next month, and keep going. They do this until they have a good-sized chunk of the company – maybe 15% or 20%.

Once they have enough shares, they come out and tell everyone they want to buy the rest of the company. This is called making a tender offer. They ask all other shareholders to sell their shares, usually at a higher price than what the shares are worth in the normal market.

Why Do Buyers Use This Method?

Many buyers like creeping tenders because they can avoid paying too much upfront. They can buy shares when prices are low and spread out their spending over time. Nobody notices them buying at first, so the share price stays steady instead of jumping up immediately.

Buyers also get time to learn more about the company they want to buy. They can watch how it runs and spot any problems before they commit to buying the whole thing.

Risks and Challenges

Creeping tenders can be tricky. Other people might notice someone is buying lots of shares and start buying too. This pushes up the share price and makes everything more expensive. The company being bought might also fight back if they don’t want to be taken over.

Laws in many countries say buyers must tell everyone when they own more than a certain amount of shares – often 5%. This means the quiet buying period can’t last forever. The target company gets a warning that someone might try to take them over.

Rules and Regulations

Different countries have different rules about creeping tenders. Most say buyers must be honest about their plans once they own enough shares. They need to file special papers with the government and tell other shareholders what they’re doing.

These rules protect small shareholders who might not know what’s happening to their company. They make sure everyone gets treated fairly when someone tries to take over a company.

Famous Examples

Many big companies have been bought through creeping tenders. One famous case happened when Volkswagen slowly bought shares in Porsche. They started small but kept buying more until they could take over the whole company.

Another example came when LVMH bought Tiffany & Co. They started by buying small amounts of shares before making a big offer for the whole jewelry company. This shows how even very large companies use this method.

Defense Strategies

Companies that don’t want to be bought have ways to fight creeping tenders. They might make new rules that make it harder for one person or group to buy too many shares. Or they could give their current shareholders special rights to buy more shares at low prices if someone tries to take over.

Some companies watch their stock trading very carefully. They look for signs that someone might be slowly buying up shares. This gives them time to prepare if they think someone wants to take them over.

Market Effects

Creeping tenders change how stock markets work. They can make share prices go up when people think a company might be bought. Other buyers might jump in hoping to make money if there’s a takeover. This can make the original buyer’s plan more expensive.

Sometimes just knowing a creeping tender might happen makes companies change how they work. They might try to do better or make changes to keep shareholders happy so nobody wants to take them over.

Legal Considerations

Taking over companies through creeping tenders needs lots of lawyers. Buyers must follow strict rules about telling people what they’re doing. They can get in big trouble if they break these rules.

Companies also need to think about competition laws. If the buyer already owns similar businesses, the government might not let them buy another one. This means buyers need to plan carefully before they start buying shares.

Money Matters

Creeping tenders need careful planning about money. Buyers need to save up enough to buy all the shares they want. They also need extra money in case the price goes up or other buyers try to compete with them.

Banks often help pay for creeping tenders. They lend money to the buyers, who promise to pay it back after they own the company. This helps buyers afford big takeovers they couldn’t pay for on their own.

Time and Planning

Most creeping tenders take months or years to finish. Buyers need to be patient and stick to their plan. They can’t rush or they might mess up their chances of taking over the company.

They also need backup plans. Things often don’t go exactly as planned when buying companies. Smart buyers think about what could go wrong and how they would handle problems.

Modern Changes

These days, computers and fast trading make creeping tenders more complicated. Buyers need to be extra careful about hiding what they’re doing. News spreads very fast and can change their plans quickly.

Social media also matters now. People talk about possible takeovers online, which can affect share prices. Buyers need to think about how to handle news and rumors about what they’re doing.

Speaking with Shareholders

Good communication matters in creeping tenders. Once buyers tell everyone what they’re doing, they need to convince other shareholders to sell their shares. This means explaining why their offer is good and how they’ll make the company better.

They might need to talk to big shareholders separately. Some shareholders own lots of shares and have more power to help or hurt the takeover plan.

Professional Help

Most creeping tenders need help from experts. Lawyers make sure everything follows the rules. Banks help with money. Public relations people help explain things to shareholders and the public.

These experts cost money but help avoid mistakes. They know what works and what doesn’t when buying companies this way.

Making it Work

Successful creeping tenders need patience and planning. Buyers must think carefully about every step. They need to know when to stay quiet and when to tell people what they’re doing.

They also need to be ready for things to change. Markets go up and down. Other buyers might appear. The company might fight back. Good buyers can handle these changes and still reach their goals.