Introduction
Most acquisitions of public companies in the United States are structured through one of two legal mechanisms: a one-step merger (single shareholder vote, closing after proxy) or a two-step merger built around a tender offer (direct purchase of shares from the target's shareholders, followed by a short-form back-end merger to mop up the remaining stock). The choice between the two is one of the most important early decisions in any public-company deal, and it drives timeline, regulatory disclosure, deal certainty, and how the market reacts to announcement.
Tender offers were once the exclusive domain of hostile bidders circumventing resistant boards. That is no longer the case. Today, the majority of friendly biotech and technology acquisitions under about $25 billion in transaction value are structured as tender offers, because the mechanics allow a well-structured deal to close several weeks faster than the one-step alternative. Understanding when and why tender offers are used, how the Williams Act and Delaware General Corporation Law interact, and what the practical timeline looks like is core knowledge for any M&A banker, associate, or interview candidate.
This guide walks through what a tender offer is and how it works, cash vs exchange offers, the minimum tender condition, Williams Act regulatory requirements, DGCL Section 251(h) and its effect on two-step structures, real recent deal examples from Gilead/Immunomedics and Merck/Acceleron, how hostile tender offers differ from friendly ones, the comparative trade-offs vs a one-step merger, and how interviewers frame the "when would you use a tender offer" question.
Tender Offer vs One-Step Merger: The Comparison Table
Before the mechanics, the practical comparison. The table below summarizes the key differences between the two structures:
| Feature | Tender offer (two-step) | One-step merger |
|---|---|---|
| Direct mechanism | Direct offer to shareholders | Negotiation with board, then shareholder vote |
| Minimum regulatory window | 20 business days (Williams Act) | Typically 3-5 months (proxy + vote) |
| Approval threshold to close | Majority tender (50%+) for DGCL 251(h) | Majority of outstanding shares voting yes |
| SEC filing | Schedule TO + Schedule 14D-9 | Preliminary proxy + definitive proxy |
| Typical closing speed | ~30-45 days after tender commences | ~4-6 months after announcement |
| Hostile vs friendly | Can be used hostile or friendly | Hostile requires proxy fight |
| Exchange ratio flexibility | Works with cash or stock (exchange offer) | Works with cash, stock, or mixed |
| Fiduciary out risk | Board can still recommend against | Board controls the vote timing |
| Typical deal size | Common under roughly $25B, all sizes possible | Common at all sizes, required above practical limits |
The practical takeaway: tender offers close faster but require the acquirer to commit to a minimum tender condition that the market can then test. One-step mergers offer more control over process but trade several months of additional timeline. The right structure is deal-specific, and large transactions often end up as one-step mergers simply because regulatory review (antitrust, CFIUS, foreign direct investment) will dominate the timeline anyway.
What a Tender Offer Actually Is
A tender offer is a formal, publicly announced offer by an acquirer to purchase shares directly from the shareholders of a target company, at a specified price, for a specified period of time. The acquirer does not ask the target's board for permission to go out to the shareholders. It files a Schedule TO with the SEC, publishes the offer, and waits to see how many shares are tendered into it during the open period.
If enough shares are tendered (typically a majority), the acquirer accepts them, pays the specified price, and becomes the majority owner. A back-end merger then sweeps up the remaining non-tendering shareholders at the same price, and the target becomes a wholly owned subsidiary of the acquirer.
Because the offer goes directly to the shareholders, tender offers have a few structural features that one-step mergers do not:
- No shareholder vote is required at the first step. Shareholders individually decide whether to tender.
- The target's board retains a legal obligation to respond via a Schedule 14D-9 filing within 10 business days, stating whether the board recommends for, against, or takes no position on the offer.
- The offer must stay open for at least 20 business days under SEC Rule 14e-1, and for an additional 10 business days if terms change materially.
- The acquirer can extend the offer if the minimum tender condition is not initially met, and often does.
- Tender Offer
A tender offer is a public, time-limited offer by an acquirer (or any investor) to purchase shares from the existing shareholders of a target company at a specified price, bypassing the target's board of directors as the counterparty. In M&A, tender offers are typically used as the first step of a two-step merger, with the acquirer seeking to reach a minimum tender condition (commonly 50% or more of outstanding shares) that allows a back-end merger to complete the acquisition. Tender offers are governed by the Williams Act at the federal level and by state corporate law (most commonly DGCL) at the structural level.
Cash Tender Offer vs Exchange Offer
Tender offers come in two basic flavors depending on what the acquirer is offering in exchange for the target's shares.
Cash tender offers are the most common form. The acquirer offers a specified dollar price per share (for example, $88 in cash per Immunomedics share in the 2020 Gilead deal). Shareholders who tender their shares receive cash on closing. Cash tender offers are straightforward mechanically, do not require the acquirer to register securities, and produce a clean, taxable event for the target shareholders.
Exchange offers are tender offers where the consideration is stock or a mix of cash and stock. The acquirer offers a specified number of its own shares (or a specified ratio) in exchange for each target share. Exchange offers are significantly more complex because the acquirer must register the new shares with the SEC, adding a registration statement to the filing package and extending the overall timeline. Tax consequences can differ as well, with certain all-stock exchange offers qualifying as tax-free reorganizations under Section 368 of the Internal Revenue Code. For more on the differences, see our overview of the main types of mergers and acquisitions.
Mixed-consideration tender offers (cash plus stock, or cash plus contingent value rights) combine features of both. They are most common in pharma and biotech, where earnout-like CVRs are used to bridge valuation gaps tied to uncertain pipeline approvals or regulatory milestones.
The Minimum Tender Condition
Every well-structured tender offer includes a minimum tender condition: the threshold of shares that must be tendered for the acquirer to be obligated to close the offer. The level chosen determines what second-step mechanism is available and shapes the entire structure of the deal.
The three practical thresholds:
- A majority of outstanding shares (50.1%+): The acquirer crosses majority ownership and can use DGCL Section 251(h) to complete a back-end merger without a second shareholder vote. This is the dominant threshold in modern tender offers for Delaware-incorporated public companies.
- Roughly 80-85% tendered: Used in older two-step structures. Above this level, combined with top-up options, the acquirer can reach the 90% threshold for a short-form merger under DGCL Section 253.
- 90% or more: The acquirer can complete a short-form merger under DGCL Section 253 directly, without any stockholder vote or court intervention, even without Section 251(h).
Most friendly transactions set the minimum tender condition at a simple majority because the 2013 adoption of DGCL Section 251(h) removed the need for higher thresholds. The minimum tender condition is functionally a "deal certainty" signal: if it is set too high, the market prices in risk that the deal might fail; if it is set too low, the acquirer might end up owning a control stake without a clean mechanism to squeeze out the remaining minority.
- Minimum Tender Condition
The minimum tender condition is the threshold specified in the tender offer materials below which the acquirer is not obligated to close the transaction. In practice it also functions as a deal-certainty parameter: it tells the market what fraction of shareholder acceptance is required for the deal to proceed, and by extension how likely the deal is to fail if target shareholders reject the premium offered. Typical thresholds in modern two-step Delaware mergers are set at a simple majority of outstanding shares, aligning with DGCL Section 251(h) requirements.
The Williams Act: Federal Regulatory Framework
The Williams Act is the federal statute that governs tender offers in the United States. Passed in 1968 in response to a wave of hostile takeovers, it was designed to give target shareholders adequate information and time to evaluate tender offers rather than being pressured into quick decisions. Its core provisions still shape every modern tender offer.
Key Williams Act requirements:
- Schedule TO filing. The acquirer must file a detailed Schedule TO with the SEC at the commencement of the offer, describing terms, financing, background, and intentions.
- Schedule 13D or 13G. Any person acquiring more than 5% beneficial ownership of a public company's stock must file within 10 calendar days, disclosing their stake and intentions. This is the first legal obligation that can be triggered well before a formal tender offer.
- Schedule 14D-9 response. The target's board must file a response within 10 business days of the tender offer commencement, stating its position (recommend, against, neutral, or unable to take a position) with reasoning.
- 20-business-day minimum offer period. Tender offers must remain open for at least 20 business days under SEC Rule 14e-1.
- 10-business-day extension on material changes. If the acquirer changes the offer terms (price, consideration, minimum tender condition) materially, the offer must be kept open for at least 10 more business days from the change.
- All-holders rule. The offer must be made to all holders of the target's securities on the same terms.
- Best-price rule. Every shareholder who tenders must receive the highest consideration paid to any other shareholder during the offer.
The central filing at the heart of this federal framework is Schedule TO, which the acquirer submits at the moment the offer commences. Understanding what Schedule TO discloses and how it pairs with the target's Schedule 14D-9 response is the best way to internalize the disclosure rhythm of a public tender offer.
- Schedule TO
Schedule TO is the formal SEC filing required of any party making a tender offer for the securities of a public company. It discloses the identity of the offeror, the terms and price, the source of funds, the background of the offer, any purpose beyond acquiring shares, and any other material information a reasonable shareholder would want before deciding whether to tender. Filing Schedule TO triggers the Williams Act 20-business-day open period and is paired with Schedule 14D-9 from the target, which sets out the board's recommendation.
DGCL Section 251(h): The Game-Changer
Before 2013, two-step mergers had a structural problem. After the tender offer, if the acquirer did not reach 90% ownership (the threshold for a short-form merger under DGCL Section 253), it had to hold a full stockholder vote to complete the back-end merger, typically taking several more weeks and negating much of the speed advantage of the tender offer. Top-up options (target-issued new shares to push ownership over 90%) partially solved the problem but created their own complications, particularly around authorized share limits.
DGCL Section 251(h), added to the Delaware General Corporation Law in August 2013, changed this dynamic. It created a "medium-form" merger: if a majority of the target's outstanding shares are tendered in the first step, the back-end merger can close without a stockholder vote, provided certain conditions are met.
Requirements to use Section 251(h):
- The target must be listed on a national securities exchange or have more than 2,000 stockholders of record at the time of the merger agreement.
- The merger agreement must expressly provide that the merger will be governed by Section 251(h).
- A majority of outstanding shares must be tendered and accepted in the first step.
- The back-end merger must be consummated as soon as practicable after the tender offer closes.
- The consideration in the back-end merger must match the tender offer consideration (no discriminatory treatment).
The practical effect was dramatic. Two-step mergers using tender offers went from being a structure for specific situations (hostile, fast-close deals, target-specific liquidity needs) to becoming the default structure for friendly biotech and smaller tech deals in Delaware. Top-up options, once a near-universal feature of two-step merger agreements, became largely obsolete.
- DGCL Section 251(h)
Section 251(h) of the Delaware General Corporation Law permits a two-step merger to be consummated without a stockholder vote on the back-end merger, provided that a majority of the target's outstanding shares were tendered and accepted in the first-step tender offer, that the merger agreement expressly adopts Section 251(h), and that the target is listed on a national exchange or has more than 2,000 stockholders of record. Effective since August 1, 2013, Section 251(h) created the so-called "medium-form merger" and significantly expanded the use of tender offers in friendly Delaware transactions by eliminating the 90% ownership threshold historically required for short-form mergers.
Section 251(h) effectively retired the top-up option as a routine feature of two-step deals, but the concept is still worth understanding because it shows up in older merger agreements, in deals structured under non-Delaware state law, and in interview questions that probe historical tender offer mechanics. A banker who can explain why top-up options existed and why Section 251(h) made them obsolete demonstrates a real working knowledge of how the Delaware merger machinery evolved.
- Top-Up Option
A top-up option is a provision in a merger agreement that grants the acquirer the right, upon reaching a specified ownership threshold (historically around 80% to 85% after the first-step tender offer), to purchase newly issued target shares at the tender offer price to push ownership above the 90% short-form merger threshold under DGCL Section 253. Top-up options were a central feature of two-step merger agreements before 2013 but became largely obsolete after DGCL Section 251(h) was adopted, because the 251(h) majority threshold removed the structural need to reach 90%.
How the Two-Step Timeline Actually Works
The practical timeline of a two-step merger using a tender offer and Section 251(h) follows a predictable pattern:
Sign merger agreement
Acquirer and target sign a definitive merger agreement that expressly adopts DGCL Section 251(h) and specifies the tender offer terms, minimum condition, and back-end merger mechanics.
Commence tender offer
Within 10 business days of signing, the acquirer files Schedule TO and publishes the tender offer. This starts the Williams Act 20-business-day minimum clock.
Board files Schedule 14D-9
Target board files its recommendation within 10 business days of commencement, almost always supporting the offer in a friendly deal.
Offer remains open 20+ business days
Shareholders tender; the acquirer monitors the count. If the minimum tender condition is not likely to be met, the offer is extended.
Cross the minimum condition
Once a majority (or higher threshold if specified) tenders, the acquirer accepts shares, pays consideration, and becomes the majority owner.
Complete back-end merger
Immediately after accepting tendered shares, the acquirer completes the Section 251(h) back-end merger without a separate stockholder vote, converting remaining untendered shares into the right to receive the same consideration.
Delist and deregister
Target is delisted from its exchange and deregistered under the Exchange Act, becoming a wholly owned subsidiary of the acquirer.
From signing to close, a well-executed two-step deal can finish in as little as 30 to 45 calendar days, compared to 4 to 6 months for a comparable one-step merger that must go through SEC proxy review, a proxy mailing period, and a special meeting. The speed advantage is the single biggest reason friendly acquirers use the tender offer structure.
Hostile vs Friendly Tender Offers
Tender offers originated as the tool of choice for hostile bidders, and they remain structurally well suited to hostile situations because they route around the target's board. The mechanics are the same as in a friendly tender offer, but the strategic and legal dynamics differ substantially.
In a hostile tender offer:
- The acquirer commences the offer without a signed merger agreement, often after a bear-hug letter is rejected.
- The target's board is legally required to file a Schedule 14D-9 within 10 business days but will almost certainly recommend against the offer.
- The target typically deploys defensive measures: poison pill (shareholder rights plan), staggered board use to slow down control transfer, litigation challenging disclosure adequacy, or search for a white knight.
- Proxy contests are often run in parallel with the tender offer to replace the board and dismantle the poison pill.
- Financing is more fragile because debt markets price in deal risk.
In a friendly tender offer:
- The merger agreement is signed before the offer commences, and the target's board files a supportive Schedule 14D-9 on day one.
- Top-up options, go-shop provisions, termination fees, and matching rights are all pre-negotiated.
- The minimum tender condition is typically set at majority with an explicit Section 251(h) structure.
- Financing certainty is high, with commitment papers locked at signing.
Real Examples: Friendly Tender Offers in Recent M&A
Biotech M&A has featured some of the cleanest modern examples of the friendly two-step structure. Two of the most heavily studied illustrate the pattern.
Gilead / Immunomedics (2020)
Gilead Sciences agreed to acquire Immunomedics in September 2020 at $88 per share in cash, valuing Immunomedics at approximately $21 billion. The deal was structured as a two-step tender offer with a back-end merger expressly under DGCL Section 251(h). The tender offer commenced on September 24, 2020, with Gilead filing Schedule TO and Immunomedics filing Schedule 14D-9 the same day. The minimum tender condition was set at a majority of outstanding shares, the condition was met, and the deal closed on October 23, 2020, roughly one month after commencement.
Gilead financed the transaction with approximately $15 billion of cash on hand and $6 billion of newly issued debt. The speed of the close (from announcement in mid-September to close on October 23) is a textbook demonstration of why sponsors and strategics use tender offers when regulatory review is not expected to dominate the timeline.
Merck / Acceleron Pharma (2021)
Merck announced its acquisition of Acceleron Pharma on September 30, 2021, at $180 per share in cash, for a total equity value of approximately $11.5 billion. The transaction was structured as a two-step tender offer with a Section 251(h) back-end merger. Merck's tender offer statement on Schedule TO was filed on October 12, 2021, and Acceleron simultaneously filed Schedule 14D-9 recommending shareholders tender. The minimum condition was a majority of outstanding shares.
The offer period was extended during an HSR second request and additional international antitrust review in Germany and Austria, with those approvals received in November 2021. The deal ultimately closed after the antitrust window cleared, illustrating a typical biotech tender offer timeline where regulatory review rather than the Williams Act minimum window drives the actual duration.
Both Gilead/Immunomedics and Merck/Acceleron are archetypal modern friendly tender offer structures: a premium cash offer, a definitive merger agreement at signing, an express Section 251(h) election, a majority minimum tender condition, and a close that completes as soon as antitrust clears.
When Bankers Recommend Tender Offer vs One-Step Merger
The "when would you structure this as a tender offer vs a one-step merger" question is common in M&A interviews at the associate level and above. The answer is a set of trade-offs:
Favor a tender offer when:
- The acquirer values speed to close (earnings accretion, strategic urgency, counter-bid risk mitigation)
- The target has a clean shareholder base likely to tender promptly (no activist overhang, no significant index holder friction)
- The deal is Delaware-incorporated and qualifies for Section 251(h)
- Regulatory review is expected to be straightforward (no HSR second request, no foreign investment review)
- The acquirer can commit financing at signing with high certainty
- The deal size is modest relative to the acquirer's cash or committed debt capacity
Favor a one-step merger when:
- The deal is large enough that antitrust review (HSR, EU merger control, UK CMA, other jurisdictions) will dominate the timeline regardless
- The target has complex shareholder mechanics (supervoting shares, heavy insider ownership, dual-class structures) that make a clean tender difficult
- The consideration is complex (large stock component, contingent payments, earnout structures) that add SEC registration friction to the tender offer path
- The target is incorporated outside Delaware in a jurisdiction that does not have a Section 251(h) equivalent
- The acquirer prefers a single up-or-down shareholder vote as a deal-certainty anchor
- A fiduciary out and go-shop period will be extensively negotiated (see our guide on go-shop periods in M&A)
The decision is rarely black and white. For deal-specific considerations like termination fees and reverse termination fees, which also influence structure choice, see our guide on break-up and termination fees in M&A.
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Cross-Border Considerations
Tender offers become more complex when the target is incorporated outside the United States or has significant international shareholder bases. Key issues:
- Foreign listing disclosure. If the target is dual-listed on a non-US exchange, the acquirer may need to comply with tender offer rules in the second jurisdiction (UK Takeover Code, Japan's tender offer rules, EU Takeover Directive).
- Currency and settlement mechanics. Cross-border tender offers often require dual-currency settlement, adding operational complexity.
- Tax consequences for international holders. US-resident and non-resident shareholders may face different tax outcomes, which can affect tender decisions materially.
- Coordinated regulatory review. Large cross-border deals face antitrust and foreign investment review in multiple jurisdictions, which always expands the effective timeline beyond the Williams Act window.
For the broader set of issues, our guide on cross-border M&A considerations walks through the full framework.
The Interview Angle
Tender offers appear in M&A interviews in several predictable forms. The most common is the "walk me through how a tender offer works" open-ended question, which tests structural knowledge. Stronger candidates bring in the Williams Act 20-business-day minimum, Schedule TO and 14D-9 filings, the minimum tender condition, and Section 251(h) as the key mechanical elements.
A second common form is the comparative question: "When would you structure an acquisition as a tender offer vs a one-step merger?" This tests judgment. The ideal answer covers deal size and regulatory dominance, shareholder base complexity, Delaware vs non-Delaware incorporation, and speed-to-close preferences, tying each factor to a concrete deal example.
A third, more advanced form appears in restructuring and distressed interviews: "How does a tender offer interact with a solicitation of consents to amend indentures?" This tests whether candidates can think about debt-side tender offers (often used in exchange offers as part of distressed liability management).
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Key Takeaways
- A tender offer is a direct, public offer to a target's shareholders to purchase their shares, governed federally by the Williams Act and structurally by state corporate law, most commonly DGCL.
- Cash tender offers are the dominant form, followed by exchange offers (stock consideration) and mixed-consideration structures (cash plus CVRs, particularly in biotech).
- The minimum tender condition is typically a majority of outstanding shares in modern Delaware two-step deals, aligned with DGCL Section 251(h) requirements.
- The Williams Act sets a 20-business-day minimum open period, Schedule TO filing requirements, a Schedule 14D-9 board response within 10 business days, and all-holders and best-price rules.
- DGCL Section 251(h), effective August 2013, created the "medium-form merger" and made majority tenders sufficient for a back-end merger without a second shareholder vote. It is the single most important development in modern US tender offer practice.
- Two-step tender offer deals can close in 30 to 45 calendar days for straightforward transactions, compared to 4 to 6 months for comparable one-step mergers.
- Hostile tender offers have lower success rates than friendly ones, with fewer than half resulting in the initial bidder closing. Premiums paid in successful hostile deals run 5 to 10 points higher than comparable friendly deals.
- Recent tender offer examples: Gilead / Immunomedics (2020) at $88 per share for roughly $21 billion and Merck / Acceleron Pharma (2021) at $180 per share for roughly $11.5 billion illustrate the modern friendly two-step structure with Section 251(h). Microsoft / Activision at roughly $68.7 billion, Pfizer / Seagen at $43 billion, and AbbVie / ImmunoGen at $10.1 billion were instead structured as one-step mergers, showing why very large or regulator-heavy deals often stay one-step.
- Choice between structures turns on deal size, regulatory dominance, shareholder base, jurisdiction, and speed preferences. There is no single right answer; the trade-off is deal-specific.
Conclusion
Tender offers are not an exotic M&A tool used only by hostile bidders. They are the default structure for the majority of friendly US biotech and smaller tech acquisitions, and understanding their mechanics is essential for anyone working in M&A advisory, private equity, or corporate development. The combination of the Williams Act federal framework and DGCL Section 251(h) at the state level has created a mature, predictable structure that consistently delivers faster closings than one-step mergers for deals where regulatory review does not dominate the timeline.
For interview preparation, the key is to move beyond the textbook definition. Knowing that a tender offer is "a direct offer to shareholders" is the floor. The real signal is being able to articulate the 20-business-day window, the 10-business-day Schedule 14D-9 response, the DGCL Section 251(h) majority threshold, and the specific deal examples that illustrate the trade-offs. For the complete M&A process context, start with our M&A process timeline and steps guide. For how tender offers relate to broader takeover dynamics, see our overview of hostile takeover defenses.
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