13.2.2. Modified Dutch Auction Tender Offers
A modified Dutch auction tender offer is a self-tender in which the issuer specifies the number of shares it is interested in purchasing and the price range within which it would accept tenders. Interested shareholders tender their shares, stating an acceptable price within the specified range. (Modified Dutch auctions are not permitted for third-party tender offers.)
The general idea is the same as with Dutch auction IPOs. But in an IPO, the issuer is selling. In a self-tender, the issuer is buying. Therefore, in some respects, a modified Dutch auction tender offer looks like the mirror image of a Dutch auction IPO. (That’s why it’s called “modified.”) With a Dutch auction IPO, the tally starts with the highest bid, eventually arriving at the lowest bid at which all shares are sold. But with a modified Dutch auction tender offer, the tally starts with the tender made at the lowest asking price, eventually arriving at the highest-priced tender offer at which all desired shares may be purchased.
Modified Dutch auction tender offers are generally subject to the same rules as other tender offers. If more shares are tendered than the issuer wishes to purchase, the issuer must buy shares on a pro rata basis. However, because the final cost of purchasing the tendered shares is somewhat unpredictable, the SEC has allowed issuers some flexibility when it comes to specifying the number of shares sought. Instead of specifying an exact number of shares sought, the SEC has allowed issuers to specify a range of shares, if a total dollar amount to be purchased is also specified.
Example: Stadtholder Windmills conducts a self-tender for its shares, using a modified Dutch auction. It decides to accept tenders in the $121–$127 range.
Instead of specifying an exact number of shares sought, the company’s Schedule TO states that it will seek to purchase 150,000–170,000 shares. To provide further guidance ab