What differentiates a tender offer from a traditional merger?

A tender offer is characterized by its approach to acquiring shares from shareholders, typically by offering a premium price above the current market value. This premium is intended to incentivize shareholders to sell their shares, making the offer more attractive and increasing the likelihood of acquiring a controlling interest in the target company. This is in contrast to a traditional merger, which often involves negotiations between the management of both companies and can result in a more complicated agreement without the same direct solicitation from the acquiring entity to the shareholders at a premium.

In the context of a tender offer, the offering party actively seeks to persuade shareholders to sell their shares, often bypassing traditional channels and engaging with the shareholders directly. This method can create a quicker pathway to gaining control, especially if the company being targeted is resistant to a merger. Thus, the premium offered in a tender offer is crucial because it serves to differentiate this acquisition method from more conventional ones, where negotiations dictate the final agreement rather than a direct approach aimed at shareholder participation.