For target company's shareholders, an advantage of accepting a tender offer is locking in what the acquiring company is offering without its bid price subject to repeated bargaining negotiations. To entice a target company's shareholders, the acquiring company usually offers to purchase their shares at a premium to the stock's current market price. A typical tender offer is fully financed and will pay cash. Any offer with the acquiring company's stock as consideration is referred to as an exchange offer. With an above-market, premium payment, a tender offer creates value for the target company's shareholders given that the company being acquired likely has had under-par performances during the time leading up to the intended takeover by a better competitor.
A tender offer is contingent on shareholders of the target company tendering a certain number of shares. Without enough shareholders agreeing to the tender offer, the acquiring company cannot garner the needed number of shares for controlling the target company. Since a tender offer is aimed at shareholders directly, once enough shareholders have come forward, the takeover does not need board approval. By accepting the tender offer, shareholders have put the fate of the merger deal in their own hands.
A tender offer is valid only for a limited period, usually open for up to 20 business days. If a tender offer is accepted by the expected number of shareholders, a merger transaction can be closed in a short period. The less time a merger is subject to, the fewer chances the transaction is at risk of facing any objections or impediments, including those from government review, third-party intervention, and any material adverse change in market conditions for the target business. For example, government review on issues like anti-trust tends to be faster for a speedier tender offer than a prolonged merger negotiation.