What is a Godfather Offer?

A godfather offer is a tender offer that is so generous that turning it down would be a breach of fiduciary duty.

How Does a Godfather Offer Work?

Let's say Company XYZ wants to buy Company ABC. Company ABC is trading at $10; Company XYZ makes a tender offer of $15 per share -- a 50% premium. The board is not crazy about selling to Company XYZ, but because the return to the shareholders is so high, it can't really refuse the offer without incurring the wrath (and lawsuits) of the shareholders for failure to act in their best interests.

Why Does a Godfather Offer Matter?

In the movie The Godfather, Don Vito Corleone, the head of the Corleone Mafia family, hears a request from his godson, Johnny Fontane. Fontane is a singer who wants Corleone to help him land a part in a movie that studio head Jack Woltz has refused to offer. Corleone agrees to help, uttering the words, 'I'm gonna make him an offer he can't refuse.' He sends his attorney to Hollywood to meet with Woltz, who again refuses to cast Fontane in the movie. The next morning, Woltz wakes up to find the severed head of his stud horse in bed with him.