Tender offers entice existing shareholders to sell to the acquiring party. The premium needs to be sufficient for the shareholder to sell, otherwise shareholders would elect to hold on to their shares and gain value from the acquirers revamp of the firm.

Example: Co X is currently trading for $50/share, I believe I can buy half the firm and improve it to $75/share. If i try to buy shares from existing shareholders at $50 they will not sell to me since they can hold on and have shares worth $75 after I take it over and improve. Thus, no one will sell to me and the deal won't go through and no improvements will happen. Instead I can issue a tender offer for a certain premium contingent on me acquiring 51% of shares.

 

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