Hedged Tender
Candlefocus EditorWhen a tender offer is made, the offering company can accept or reject individual shareholders’ shares. While it is not always the case, an investor may not receive the full value of their shares if the offering company decides to reject them. This is where the hedged tender comes in.
The hedged tender allows an investor to purchase a series of options, known as the “hedging instrument”, which entitles the investor to a cash payment of the difference between the tender offer price and the market price of the stock. If the offering company accepts the investor’s shares, no payment is made and the hedging instrument is simply cancelled. If the offering company rejects the investor’s shares, the investor can collect the difference between the market price and the tender offer price.
Hedged tender offers provide considerable advantages over traditional tender offers. Firstly, they can reduce the investor’s overall risk and provide a guarantee of the market price of their shares. Secondly, the hedging instrument can help investors to maximize the value of their returns and to mitigate any losses should their shares be rejected by the offering company.
Hedged tender offers can also help investors to diversify their investments and to diversify their risk. By being able to purchase a hedging instrument, investors can spread the risk of their portfolio across multiple investments in the event that their shares are rejected.
Overall, hedged tender offers provide a practical solution to the risk associated with a traditional tender offer. By ensuring that investors can protect themselves from losses and maximize the value of their returns, hedged tender offers are an effective way for companies and individual investors to minimize their risk and maximize their returns.