Creeping Tender Offer

A creeping tender offer, also known as a creeping acquisition, is a takeover strategy involving the gradual acquisition of a public company's shares on the stock market, instead of making a direct bid.

Creeping tender offers are used in some countries to enable an acquirer to surreptitiously gain a controlling interest in a company, in order to reduce the acquisition premium that might otherwise be paid in a formal tender offer.

In the U.S., the technique has virtually disappeared since the 1980s, because poison pills are a reliable defense against creeping acquisitions. They make it impossible to cross certain ownership thresholds without the board’s consent. Also, the Securities and Exchange Commission rules require any corporation or individual acquiring 5% of a public company to file a Schedule 13-D form with the SEC, the company and the exchange(s).

However, in 2014, Valeant’s hostile takeover bid for Allergan, a global pharmaceuticals company, supported by activist hedge fund Pershing Square Capital Management, raised fears that creeping tender offers could make a comeback. Allergan shareholders filed a lawsuit against Pershing Square and Valeant, alleging the joint takeover bid violated securities laws regarding a tender offer for the purchase of shares from Allergan shareholders. It claimed that Pershing Square was essentially trading shares in Allergan in advance of a tender offer from Valeant, which Pershing Square knew was going to happen.

Because poison pills are not legal in most European countries, creeping tender offers are a feature of the market for corporate control – often enabling suboptimal acquirers from taking over companies. In Italy, companies are free to build stakes up to 30% before having to make a mandatory bid.

To defend themselves from hostile takeovers, European companies fall back on defensive strategies, such as dual class stock structures – which neuters the market for corporate control. By making companies less contestable, such ownership structures damage market efficiency and the ability of investors to create shareholder value by taking over failing companies with poor corporate governance and holding bad management to account.