If you hold shares in an investment trust, you may have at some point received notice of a ‘tender offer’. But what does this mean, and as a shareholder, what do you need to do?
A tender offer is just that, an offer to shareholders to redeem their shares, usually at a favourable price, either by another significant shareholder or the company itself. This can happen for a few reasons: the buyer may want to have more control over the company, or management may be purchasing the shares at a premium price to boost the share price of the investment trust. This can help eradicate a discount to the value of the trust’s underlying assets and is similar to a share buyback in that the shares will be cancelled after purchase. Read more about why trusts can trade at a discount, or indeed a premium, to their net asset value.
Tender offers are completed in a specific timeframe and typically come in the form of either a set price or a maximum price. A set price tender offer is as simple as it seems: they offer to buy back each share at a given price, and if you decide to sell some or all your shares, you will be given that amount in exchange. Sometimes a company will look to purchase back all their shares, but it also could be a set number. In the case of a set number, once that amount is filled, the deal could either be done, or the trust may choose to limit the amount of shares that each shareholder can sell back.
In a maximum price deal, there is a range of prices a trust is willing to sell for. You know that the price you will get will be somewhere in that range, but the exact price is dependent on the interest they receive. So, if they get a large number of people wanting to redeem shares, then they will buy them back at the lower end of the range. If there’s a smaller number of people, they will buy them back at the higher end of the range.
What do you need to do as a shareholder?
As a shareholder, you essentially need to decide if you’d like to continue with your investment or sell your shares and move on to something else. It’s important to be aware of the timeframe for the deal, so you don’t miss out if you decide you’d rather sell. A detailed timetable will be released when the trust or other party announces the tender offer.
It’s important to understand why the offer is happening in the first place, if it is with the simple aim of reducing the discount, do you feel that the trust is being unfairly neglected by the market? One way to assess this is to look at the net asset value of the trust instead. This is the value of the portfolio itself, instead of the price people are willing to pay for it. If this figure is consistent, you may be willing to stick it out. If it’s been struggling, you might be more inclined to consider if it’s time to sell. Past performance doesn’t guarantee future returns, but it might give some insight into what is going on behind the scenes.
If the tender offer is coming from someone other than the trust itself, or if the trust is offering the tender with the purpose of trying to make someone else sell, you might consider what implications this might have for the trust.
Sometimes, investment trusts are approached by activist investors. These investors will take meaningful stakes the trust and use their influence to make changes to how the trust is run if they are not happy with the returns. This isn’t necessarily a negative thing if you’re a shareholder (they might run it in a way that creates larger returns), but it’s good to be aware of. New plans for the trust could differ from the approach which attracted you to it as an investment in the first place.
Most obviously, but arguably most importantly, you’ll also want to consider the price of the offer. Usually, the deals offered in a tender offer are quite attractive for buyers. A tender offer is a good opportunity for a shareholder to have an honest check in about their investment with fresh eyes ensure it is still right for them.
Hannah Williford: Content Writer
Hannah joined AJ Bell in 2025 as an investment writer. She was previously a journalist at Portfolio Adviser Magazine, reporting on multi-asset, fixed income and equity funds, as well as macroeconomic impacts and regulatory changes...
