Investment owners sometimes receive confusing propositions in dense documents. We are talking about tender offers. Let’s cut through the fog.

A tender offer is when a buyer would like to purchase something you own for a specified price. There are three common types. Clients, many of you may be receiving tender offers now, of the first type:

1. Companies issue stocks and bonds to meet their needs at the time of issue. If the situation changes, they may want to buy those securities back from the public. For example, a company short of liquidity may issue bonds to raise cash. If they later have a more economical way to borrow, or simply want to pay down debt, they might try to buy those bonds back.

2. Sometimes an investment organization or hedge fund offers to buy shares in an unaffiliated public company.

3. Companies have obligations to each stockholder. Whether the stockholder owns a million shares or one share, the cost of providing annual reports and tracking proxy votes is the same. So companies sometimes offer to buy the shares of small holders, usually under 100 shares. These offers are called ‘odd-lot tenders.’

As a rule of thumb, be cautious when a stranger wants to buy something from you. A client once told me about an antique dealer wanting to buy one of her possessions. She said, “I knew one thing when he made that offer—it was worth more than that, or he wouldn’t have wanted it.” This could apply to the first two kinds of tenders.

If you own a small number of shares, you are under no obligation to sell them back in an odd-lot tender. You have the right to keep on owning your shares. The simple alternative is to just sell your shares any day if you no longer want them.

Tender offers may take away flexibility. Owners commit (‘tender’) their holdings. Then weeks or months later, they learn whether or not the tender will actually be completed. In the interim, the holding cannot be sold in the market and no money is received.

Clients, if you have questions about an offer you receive, please email us or call. We think it our job to understand those offers, and be available to talk about your situation.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.