When a company is acquired, what does open offer mean?

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krishna-agrawala's profile pic

krishna-agrawala | College Teacher | (Level 3) Valedictorian

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A joint stock company is acquired by acquiring the majority shares or stocks of the company. This can be done by purchasing the shares using normal stock exchange facilities, or private transactions between the buyer and sellers. Another route of acquiring majority shares is to make a offer, through a public announcement, to all existing shareholders of the company to sell their shares at a fixed price. This offer made to the general public to buy their shares is called "open offer".

A company or a person may make open public offer for purchase of shares of a company to acquire controlling interest in the company, or just to increase their holding.

Some countries have laws that require a person or company to make public offer under certain conditions. For example, in India a public offer for purchase of share becomes mandatory when the market or private purchase of shares results in total holdings of purchaser crosses a threshold level in terms of percentage of total shares of the company.

william1941's profile pic

william1941 | College Teacher | (Level 3) Valedictorian

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When a company wants to acquire a controlling stake in another company it needs to buy stock of that company. This could be done either by acquiring the stock from retail investors through transactions via a stock exchange or the acquirer could buy stock from other large institutions or individuals who presently own a large percentage of the company.

In many countries there is a provision that if the acquirer's stake in the company it is trying to acquire goes up beyond a certain percentage, it is mandatory for the acquirer to offer retail investors the opportunity to sell their stock in the company to the acquirer at a price which is higher than the current market rate and is estimated by using different formulae. This is called an open offer. It is meant to protect the interests of minority stakeholders.

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