What is a tender offer?
This question was prompted by news that there will be a tender offer (TO) for shares of Cemex [CHP 1.2] at P1.30/share being conducted by CHP’s parent company, CEMEX Asian South East Corp (CASEC).
The best way to understand a TO is that it is a process that allows someone to buy a lot of shares in a company at a specific price.
Any person or company could use the TO process to acquire shares in the target company, it’s just more common to see a majority or significant shareholder of the target company.
That’s what is happening with CHP, where CASEC, CHP’s parent company, is using the TO process to buy 1.6 billion shares to increase its stake in CHP from 77.89% per cent to 89.86%.
The TO process is pretty straightforward, and starts with the acquiring person or company (here, CASEC), submitting a Tender Offer Report to the PSE that outlines terms and conditions of the offer, including the offer price, the number of shares being offered, and the timeframe for the offer.
Once the offer is open, shareholders of the target company have the option to tender (sell) their shares at the offered price to the acquiring company. If the acquiring company receives enough shares, the acquiring company will then buy all the shares from the sellers at the TO price.
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One thing to note is that the tender offer process is not guaranteed. If the TO is “oversubscribed”, a selling shareholder’s ability to participate in the tender offer could be limited.
The offer period could be extended by CASEC at any time.
Depending on the language of the tender offer, it might only “succeed” if the number of shares pledged into the tender offer exceeds some minimum threshold.
That being said, a tender offer is a good way for a company to acquire a big chunk of shares in a way that maximizes its cost certainty.
CASEC could have decided to buy P2.1 billion worth of CHP on the open market, making daily purchases and submitting the required paperwork to the PSE each day to report those transactions, but CHP traded only about 300,000 shares per day back in Q4/22, and the amount that CASEC wants to buy is like over 5000 trading days’ worth of CHP.
The CHP market isn’t “deep” enough for that kind of buying interest to not cause the price to skyrocket.
As we saw, the price already jumped 50% when the daily volume increased by around 10x during the early portion of January this year.
To buy the same number of shares on the open market by the TO closing date of March 30, CASEC would need to maintain a daily buy of 27 million shares for 60 days.
Who knows what the price would be by then, especially if the market caught on.
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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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