What is a Hedged Tender?
How Does a Hedged Tender Work?
A tender offer is a proposition from one investor or company to purchase a number of shares of another company's stock at a higher-than-market price. A hedged tender strategy allows investors to submit some of their shares for tender while shorting the remaining shares in the event that the company fails to complete the tender offer (which usually causes share prices to decline).
For example, suppose Company XYZ announces a tender offer for 20% of Company ABC's outstanding stock. Company ABC trades at $25, but Company XYZ offers to pay ABC's holders $30 per share. Bob holds 100 shares of Company ABC. He submits 20 shares for sale as part of the tender offer and shorts his remaining 80 shares. If the offering company does not purchase his 20 shares for $30 per share, Bob's short position on the remaining 80 shares still allows him to lock in a profit on the failed tender offer.