SIE Ready📣 Corporate Actions · Lesson 3 of 4 · 6 min
Offers You Can Take or Leave: Rights, Tenders and Mergers
📬 A letter says a buyer will pay $55 for shares trading at $48. Do you have to sell? No, and that is the difference between a tender offer and a merger.
💡 Key idea
Tender and exchange offers are voluntary for each holder; an approved merger converts all shares on the deal terms. Rights let current owners keep their percentage.
🧠 Why it matters
In a RIGHTS OFFERING, a company lets existing shareholders buy new shares, usually below market, in proportion to what they own; rights are short-lived and can be exercised, sold or allowed to expire. A TENDER OFFER is a public offer to buy shares, often at a premium, for a limited time; each holder decides whether to tender. An EXCHANGE OFFER pays with other securities instead of cash. In a MERGER or ACQUISITION, once the deal is approved (often by a shareholder vote), shares convert into cash, acquirer stock or both, per the deal terms. A SPIN-OFF distributes shares of a new, separate company to existing shareholders. Example: one right per share, 5 rights plus $20 buys one new share.
📈 In the real world
🤝 Felix, a fictional customer, owns 1,000 shares of a target company. A rival offers $55 cash in a tender offer. Felix chooses not to tender. Months later the company agrees to merge, shareholders approve it and Felix's shares convert into the deal's cash and stock consideration.
📌 Takeaways
- Rights: buy new shares at a set price, usually below market; short-lived
- Tender offer: voluntary offer to buy, often at a premium
- Spin-off: shareholders receive shares of a new, separate company
📖 Terms in this lesson
Tender offer: A public offer to buy shareholders' stock, usually at a premium, for a limited time.
✅ Test yourself
Which corporate action lets existing shareholders buy new shares in proportion to their ownership?
- Spin-off
- Rights offering
- Stock split
- Tender offer
Answer: B · Rights offering
A rights offering lets current holders buy new shares, usually below market, to maintain their percentage. A tender offer buys shares from holders, a spin-off gives shares of a new company, and a split creates no new money.
A company distributes shares of a newly separated division to its own shareholders. What is this called?
- Tender offer
- Reverse split
- Spin-off
- Rights offering
Answer: C · Spin-off
A spin-off hands shareholders shares of a new, independent company. No purchase is needed, unlike a rights offering, and nothing is bought from holders, unlike a tender offer.
What distinguishes an exchange offer from a cash tender offer?
- It needs no disclosure
- It is only for bondholders
- Holders must accept it
- It pays in other securities
Answer: D · It pays in other securities
An exchange offer gives holders other securities (for example the bidder's shares) rather than cash. Like a tender offer it is voluntary and subject to SEC disclosure rules.
SIE-style questions, XP and streaks in the app. No sign-up needed.