Creeping tender offers are situations in which an investor or group of investors seek to gradually acquire the shares of stock issued by a target company, while attempting to get around the core provisions of the Williams Act. The purchase of shares is confined to any shares that are available on the open market. Often, the ultimate goal of a creeping tender offer is to acquire enough shares of the stock to have enough interest in the company to create a voting bloc.
The Williams Act is relevant to the practice of buying and selling of shares in any market that operates within the United States of America. For many years after the addition of this act in 1968, the provisions of this act helped to minimize the potential for the use of a creeping tender offer. One of the key elements of the Williams Act is that shareholders must be offered the same price for their available shares. This means that if one shareholder is offered a particular price for his or her shares, the same investor or group of investors cannot offer a different shareholder a different price in order to attract a sale. Until the original price is rejected, the group cannot offer a higher price per share to a different shareholder.
Further provisions of the Williams Act require that any investor or group of investors attempting to acquire shares of stock must file all relevant details of their tender offer with the Securities and Exchange Commission and the company that is targeted. This detail includes the price per share that is being offered.
With a creeping tender offer, the group will attempt to circumvent these requirements and quietly go about purchasing shares from different shareholders. Only once a substantial number of shares have been acquired with the group do they comply with filing the proper documents with the SEC. The result can be that the target company finds itself in a hostile takeover bid before there is a chance to prepare for the onslaught.
While it was relatively easy for most of the latter part of the 20th century to interpret and apply the provisions of the Williams Act in a way that prevented the possibility of a creeping tender offer, that is not necessarily the case today. Changes in the structure of derivatives and how they relate to traditional corporate stock have made the application more complicated. As a result, there is sometimes a gray area that may allow a group of investors to create and utilize a creeping tender offer successfully.
