ABSTRACT
TH E T E N D E R O F F E R has recently become a popular way to change control over the assets of a fi rm.2 Unlike the more traditional merger proposal which must be approved by the target fi rm’s board of directors before it is submitted to a shareholder vote, a tender offer is made directly to the target’s shareholders and requires neither approval nor even notifi cation of the target’s board of directors. While tender offers and mergers each evoke controversy, a simple argument suggests either is benefi cial to both the acquiring fi rm and the shareholders of the acquired (target) fi rm. Each is a voluntary exchange and so would be agreed to only if both parties to the exchange expect to benefi t. Since mergers require approval of the management of the target fi rm, however, they add another party to the exchange.3 Again invoking the argument of mutually benefi cial exchange, it must be that, for mergers, not only do the acquiring fi rm and shareholders of the target benefi t but so do the managers of the target. Since target management is not a party to the exchange embodied in a tender offer, though, it need not benefi t and indeed may be harmed. This explains why tender offers are sometimes hostile (opposed by management of the target) and sometimes friendly, while mergers are always friendly.
