Tender Offer

A Tender offer is a corporate finance term denoting a type of takeover bid. The tender offer is a public, open offer or invitation (usually announced in a newspaper advertisement) by a prospective acquirer to all stockholders of a publicly traded corporation (the target corporation) to tender their stock for sale at a specified price during a specified time. In a tender offer, the bidder contacts shareholders directly; the directors of the company may or may not have endorsed the tender offer proposal.

The takeover bid may be friendly or unfriendly.

Recognizing a Tender Offer

Most custodians will change the CUSIP and create a new security when a tender offer is made. You will usually see one red (-) out of balance and one blue (+) out of balance for each account. The red out of balance will be for the new security and the blue out of balance will be for the original security.

Other ways to confirm a tender offer are:

Remember, tender offers are temporary holdings which may or may not be completed based on the final outcome of the offer.

Handling the Tender Offer

Select from the methods below to handle the tender offer.

Method One: Use Custodian Transactions

Using this method to reflect the tender offer shows the movement between the two securities. Both securities would show on reports and will have their own performance. If tracking cost basis, it will need to be manually entered.

Method Two: Use Replace Holding

Using this method to reflect the tender offer replaces all the previous transactions with a new holding. This will be the only holding that shows on reports.

  1. Delete the journal or credit/debit of security transactions.

  2. Reconcile. You will have two out of balances for the same holdings for the same account for the same amount of shares.

  3. Put a check next to these two; click on Action and then Replace Holding. The system will choose the current custodian position as the target.

  4. Choose the 'Apply holdings replacement for all accounts in Reconciliation Blotter for this source/target pair' if you have more than one account affected.

  5. Select the option to copy prices in the Replace Holdings screen to move prices from the original security into the new and click Replace Holding at the bottom.

  6. Reconcile. You should not have no reconciliation items for the tender offer.

Method Three: Use the Corporate Action Warehouse

Using this method to reflect the tender offer shows the movement between the two securities. Using the Corporate Action Warehouse will automatically transfer cost basis to the new security.

Notes:

  1. Delete all the transactions that the custodian is sending down dealing with the tender offer.

  2. Click on Corporate Action Warehouse. The information will need to be entered manually into the wizard so be sure to get the security information (name, CUSIP, etc.).

  3. Click on Corporate Action Wizard; choose the Merger/Exchange Wizard. Click the magnifying glass next to Security Name and find the original security. Enter the correct date in the Effective Date field. You can get this information from the custodian. The Merger Type is Security only. Click Next

  4. Click on the magnifying glass next to New Security Name and find the new security; it will be within one of the User Defined universes.

  5. To get the Share Exchange Ratio, divide the new shares by the old shares. This will most likely be 1. Click Next.

  6. Verify that the Import Source displays the correct custodian. Click Next.

  7. Make sure the amount on the Debit of Security transaction nets out with the total amount on the Credit of Security transactions for each account. If they do not, add up the amounts from the credits and type this into the Net and Gross amount columns on the debit. If you make any changes, be sure to click Save.

  8. Reconcile.  Everything for these holdings should be reconciled.

Once the Tender Completes

Once the Tender Offer completes, the custodian will send down a Sell for the new CUSIP.

Note: If Fidelity is your custodian, they will send down an Income transaction for the old CUSIP. This is incorrect and should be deleted. You will then want to manually enter this transaction as an Accrued Interest Sold under the new CUSIP.

If the Tender Offer is Rejected or Doesn't Complete

The temporary tender shares are moved back into the original holding by the custodian. Based on the option you originally chose, follow the appropriate steps below.

 

If you originally chose Method 1: Use Custodian Transactions

The custodian should send down another set of journals or debit/credit of security transactions.

  1. If needed, change the journal transactions to a Debit of Security (for the security that was created to handle the tender) and a Credit of Security (for the holding that was originally in the account).

  2. The amounts for these transactions must net. The transactions have the shares included, so you will need to add a price or amount.

  3. If you want to track cost basis, you will need to add the cost basis on to the credit of security transaction.

If you originally chose Method 2: Use Replace Holding

  1. Delete the journal or credit/debit of security transactions.

  2. Reconcile. You will have two out of balances for the same holdings for the same account for the same amount of shares.

  3. Put a check next to these two; click on Action and then Replace Holding. The system will choose the current custodian position as the target. Choose the ‘Apply holding replacement for all accounts in Reconciliation Blotter for this source/target pair’ if you have more than one account affected.

  4. Select the option to copy prices in the Replace Holding screen to move the prices from the original security into the new and click Replace Holding at the bottom.

  5. Reconcile.  You should now have no reconciliation items for the tender offer.

If you chose Method 3: Use the Corporate Action Warehouse

Note: This will not work on Fixed Income securities; only on Open-End Funds, Stocks, ETFs, Closed-End Funds, User-Defined Equity, User-Defined Derivatives, and User-Defined Managed Accounts.

  1. Delete all the transactions that the custodian is sending down dealing with the tender offer.

  2. Click on Corporate Action Warehouse. The information will need to be entered manually into the wizard so be sure to get the security information (name, CUSIP, etc.).

  3. Click on Corporate Action Wizard; choose the Merger/Exchange Wizard. Click the magnifying glass next to Security Name and find the original security. Enter the correct date in the Effective Date field. You can get this information from the custodian. The Merger Type is Security only. Click Next

  4. Click on the magnifying glass next to New Security Name and find the new security; it will be within one of the User Defined universes.

  5. To get the Share Exchange Ratio, divide the new shares by the old shares. This will most likely be 1. Click Next.

  6. Verify that the Import Source displays the correct custodian. Click Next.

  7. Make sure the amount on the Debit of Security transaction nets out with the total amount on the Credit of Security transactions for each account. If they do not, add up the amounts from the credits and type this into the Net and Gross amount columns on the debit. If you make any changes, be sure to click Save.

  8. Reconcile.  Everything for these holdings should be reconciled.