{"id":1402,"date":"2020-04-09T00:00:00","date_gmt":"2020-04-09T00:00:00","guid":{"rendered":"http:\/\/www-staging.carta.com\/sg\/blog\/tender-offer-faq\/"},"modified":"2021-03-05T06:55:32","modified_gmt":"2021-03-05T06:55:32","slug":"tender-offer-faq","status":"publish","type":"post","link":"https:\/\/www-staging.carta.com\/sg\/blog\/tender-offer-faq\/","title":{"rendered":"What is a tender offer?"},"content":{"rendered":"\r\n<p>Sometimes, people like to refer to <a href=\"https:\/\/www-staging.carta.com\/sg\/blog\/employee-stock-options\/\">stock options<\/a> as Monopoly money. It&#8217;s fun to dream about\u00a0what they could buy, but you can\u2019t usually convert them to cash (and buy real houses) unless you get lucky and your company goes public or gets acquired.<\/p>\r\n\r\n\r\n\r\n<p>Fortunately, this is changing. Even though <a href=\"https:\/\/www-staging.carta.com\/sg\/blog\/private-is-the-new-public\/\">companies are staying private longer<\/a>, many are exploring ways to offer their employees <a href=\"https:\/\/www-staging.carta.com\/sg\/blog\/liquidity-event-tender-offer\/\">liquidity<\/a>.<\/p>\r\n\r\n\r\n\r\n<p>A common liquidity option is the tender offer. Here&#8217;s what you need to know.<\/p>\r\n\r\n\r\n\r\n<h2>What is a tender offer?<\/h2>\r\n\r\n\r\n\r\n<p>A tender offer is a structured, company-sponsored <a href=\"https:\/\/www-staging.carta.com\/sg\/liquidity\/\">liquidity<\/a> event that typically allows multiple sellers to tender their shares either to an investor or back to the company. In other words, it\u2019s a potential way for you to sell some of your shares while your company is still private.\u00a0<\/p>\r\n\r\n\r\n\r\n<p>Tender offers can benefit everyone involved:<\/p>\r\n\r\n\r\n\r\n<ul>\r\n<li>The <strong>sellers<\/strong> (you, other employees, and early investors) monetize their equity without having to wait for the company to go public or get acquired.<\/li>\r\n<li>The <strong>buyer<\/strong> receives equity in a company they\u2019d like to invest in.\u00a0<\/li>\r\n<li>The <strong>company<\/strong> attracts and retains talent, as <a href=\"https:\/\/www-staging.carta.com\/sg\/blog\/work-at-carta-get-liquidity\/\">employees value the opportunity to receive cash for their stock and options as the company matures<\/a>.<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<h2>What are the different types of tender offers?<\/h2>\r\n\r\n\r\n\r\n<p>There are two types of tender offers used in this context:<\/p>\r\n\r\n\r\n\r\n<ul>\r\n<li><strong>Issuer tender offers<\/strong>, also known as <strong>share buybacks<\/strong>, are when the company offers to buy shares back from shareholders.<\/li>\r\n<li><strong>Third party tender offers<\/strong> are when an investor or company offers to buy shares.<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<h2>How do tender offers work?<\/h2>\r\n\r\n\r\n\r\n<p>The details can vary, but in general, the tender offer process looks something like this:<\/p>\r\n\r\n\r\n\r\n<p>A buyer offers to buy shares at a set price. This offer isn\u2019t guaranteed\u2014they usually require a specific minimum amount of shares, so there has to be enough interest. Otherwise, they may not be obligated to go through with the offer. To encourage people to sell sufficient volume to meet their needs, they sometimes offer a price that is at a higher end of the valuation for the shares.<\/p>\r\n\r\n\r\n\r\n<p>Once the company confirms the offer price and gets approval from the board of directors, they work with their counsel and the buyers to prepare the disclosures and transaction documents.<\/p>\r\n\r\n\r\n\r\n<p>Finally, a window is opened for you as a seller to evaluate the transaction details and decide whether you want to participate, and if so, how many shares you want to sell. Under SEC rules, tender offers must remain open for at least <a href=\"https:\/\/www.sec.gov\/Archives\/edgar\/data\/802481\/000119312506199094\/dex996.htm\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">20 business days<\/a>, so you have time to ask questions, examine the documents, and decide whether participating is right for your personal circumstance. Your company must provide financial statements as part of the transaction disclosures, so you can make an informed decision about selling.<\/p>\r\n\r\n\r\n\r\n<h3>Tender offer rules and regulations<\/h3>\r\n\r\n\r\n\r\n<p>Companies will often set qualifying criteria for participating in a tender offer. Sometimes, your company might only allow you to participate if you\u2019ve exercised your options and held the resulting stock for at least six months. They might also limit how many shares you can sell to ensure your incentives are aligned with the company.<\/p>\r\n\r\n\r\n\r\n<h3>Tender offer example<\/h3>\r\n\r\n\r\n\r\n<ul>\r\n<li>Krakatoa Ventures offers to buy at least 2,000,000 shares, or 5%, of Meetly common stock<\/li>\r\n<li>Fair market value (FMV) of Meetly stock prior to the tender offer: $15<\/li>\r\n<li>Krakatoa Ventures offers $17 per share<\/li>\r\n<li>The offer lasts for 20 business days<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<h2>Should you participate in a tender offer?<\/h2>\r\n\r\n\r\n\r\n<p>Ultimately, participating in a tender offer is a personal decision. Here are a few tips to help you decide:\u00a0<\/p>\r\n\r\n\r\n\r\n<ul>\r\n<li><strong>Go to the info sessions.<\/strong> There, you can ask questions and get the important details, like who qualifies and when you have to decide by.<\/li>\r\n<li><strong>Read all the documents your company gives you.<\/strong> They should help you get a better idea of how your company is doing.<\/li>\r\n<li><strong>Talk to a financial advisor.<\/strong> They can help you figure out if it\u2019s a good idea to participate in the context of your current financial situation and goals.<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<p>Also, <strong>ask yourself the following questions<\/strong>:<\/p>\r\n\r\n\r\n\r\n<ul>\r\n<li>What are my financial goals? Do I need the money now, or can I wait?<\/li>\r\n<li>How\u2019s my company doing? Do I think the value of my stock will continue to rise?<\/li>\r\n<li>When do I think the next liquidity event will be?<\/li>\r\n<li>How much will it cost to exercise my remaining stock options?<\/li>\r\n<li>Do I think the price the buyer is offering is fair?<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<h3>Pros and cons of participating in a tender offer<\/h3>\r\n\r\n\r\n\r\n<div id=\"footable_parent_7094\"\n         class=\" footable_parent ninja_table_wrapper loading_ninja_table wp_table_data_press_parent semantic_ui \">\n                <table data-ninja_table_instance=\"ninja_table_instance_0\" data-footable_id=\"7094\" data-filter-delay=\"1000\" aria-label=\"tender-offer-pros-and-cons.csv\"            id=\"footable_7094\"\n           data-unique_identifier=\"ninja_table_unique_id_2057844989_7094\"\n           class=\" foo-table ninja_footable foo_table_7094 ninja_table_unique_id_2057844989_7094 ui table  nt_type_legacy_table selectable striped vertical_centered  footable-paging-right ninja_table_search_disabled ninja_table_pro\">\n                <colgroup>\n                            <col class=\"ninja_column_0 \">\n                            <col class=\"ninja_column_1 \">\n                    <\/colgroup>\n        <thead>\n<tr class=\"footable-header\">\n                                        <th scope=\"col\"  class=\"ninja_column_0 ninja_clmn_nm_pros \">Pros<\/th><th scope=\"col\"  class=\"ninja_column_1 ninja_clmn_nm_cons \">Cons<\/th><\/tr>\n<\/thead>\n<tbody>\n\n        <tr data-row_id=\"234\" class=\"ninja_table_row_0 nt_row_id_234\">\n            <td><ul>\n<li>You get to monetize otherwise illiquid equity<\/li>\n<li>You can use proceeds from the sale to exercise your remaining options for better tax treatment in future transactions, diversify your personal portfolio, pay off debt, put in savings, etc.<\/li>\n<li>Sometimes you get to sell for more than the shares are currently worth<\/li>\n<\/ul><\/td><td><ul>\n<li>If the shares become more valuable later, you lose out on additional growth<\/li>\n<li>If you exercise and sell in one transaction (companies don\u2019t always allow this), you lose out on the favorable tax treatment of ISOs because you don\u2019t meet the holding period requirements<\/li>\n<\/ul><\/td>        <\/tr>\n    <\/tbody><!--ninja_tobody_rendering_done-->\n    <\/table>\n                    <style type=\"text\/css\" id='ninja_table_custom_css_7094'>\n                        #footable_7094  {\n        font-family: inherit;\n        font-size: 14px;\n    }\n\n                <\/style>\n                \n    \n    \n<\/div>\n\r\n\r\n\r\n\r\n<p>&nbsp;<\/p>\r\n\r\n\r\n\r\n<h2>What happens if you don\u2019t accept a tender offer?<\/h2>\r\n\r\n\r\n\r\n<p>You don\u2019t have to participate in a tender offer. If you\u2019d rather keep your shares, simply don\u2019t do anything.<\/p>\r\n\r\n\r\n\r\n<h2>How are tender offers taxed?<\/h2>\r\n\r\n\r\n\r\n<p>If your company lets you exercise options and sell the resulting shares in one transaction (and you choose to go that route), you\u2019ll pay <strong>ordinary income tax<\/strong> on the difference between your strike price and what the shares are worth when you exercised and sold them. Keep in mind that if you make enough profit, this extra income could bump you up into a higher tax bracket.<\/p>\r\n\r\n\r\n\r\n<p>If you tender shares you already own (e.g., shares from exercised options or settled RSUs), you\u2019ll pay <strong>capital gains taxes<\/strong> on any increase in the value of the shares between the exercise price and the sale price.<\/p>\r\n\r\n\r\n\r\n<ul>\r\n<li>If you\u2019ve held the shares for at least one year after exercising and two years after your grant date, you\u2019ll pay <strong>long-term capital gains<\/strong>.<\/li>\r\n<li>If you sell before you hit the holding period mentioned above, you\u2019ll pay <strong>short-term capital gains<\/strong>.<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<h3>Tender offer example (continued)<\/h3>\r\n\r\n\r\n\r\n<ul>\r\n<li>You exercised 500 shares from your <a href=\"https:\/\/www-staging.carta.com\/sg\/blog\/what-are-incentive-stock-options\/\">ISO<\/a> at a $5 strike price over a year ago. You received your grant more than two years ago. The FMV of the shares was $10 when you exercised.<\/li>\r\n<li>Your company allows you to sell up to 10% of your 500 shares<\/li>\r\n<li>You decide to sell 50 shares in this tender offer, which gets you $850 ($17 offer price * 50 shares)<\/li>\r\n<li>You will pay long term capital gains on $600 [ ($17 offer price &#8211; $5 strike price) x 50 shares]<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<p>If you want to optimize your tax withholding strategy, lowering your adjusted gross income by maxing out your 401(k) and increasing charitable donations may help. You should also consult with a tax professional before participating.<\/p>\r\n\r\n\r\n<hr class=\"wp-block-separator\" \/>\r\n\r\n\r\n\r\n\r\n<p class=\"has-small-font-size\">DISCLOSURE: This post contains general information only and eShares, Inc. dba Carta, Inc. (\u201cCarta\u201d) is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services.\u00a0 This post is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests. Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor.\u00a0 This post is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein.<\/p>\r\n\r\n\r\n\r\n<p class=\"has-small-font-size\">This post contains links to articles or other information that may be contained on third-party websites.\u00a0 The inclusion of any hyperlink is not and does not imply any endorsement, approval, investigation, or verification by Carta, and Carta does not endorse or accept responsibility for the content, or the use, of such third-party websites. Carta assumes no liability for any inaccuracies, errors or omissions in or from any data or other information provided on such third-party websites.<\/p>\r\n","protected":false},"excerpt":{"rendered":"<p>A tender offer is a structured, company-sponsored liquidity event that typically allows multiple sellers to tender their shares either to an investor or back to the company. In other words, it\u2019s a potential way for you to sell some of your shares while your company is still private. Learn more.<\/p>\n","protected":false},"author":66,"featured_media":2951,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[9,10],"tags":[18,11,20,7,39,41],"acf":[],"_links":{"self":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/posts\/1402"}],"collection":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/users\/66"}],"replies":[{"embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/comments?post=1402"}],"version-history":[{"count":0,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/posts\/1402\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/media\/2951"}],"wp:attachment":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/media?parent=1402"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/categories?post=1402"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/tags?post=1402"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}