Definition
A Dutch auction tender offer (technically a modified Dutch auction in U.S. usage) is a tender-offer structure where the bidder specifies a price range and lets shareholders elect both the number of shares they will tender and the minimum price they will accept. The bidder then determines the clearing price — the lowest price within the range at which the desired number of shares can be purchased — and pays that price to all shareholders whose election was at or below it.
Mechanics
- Bidder announces a price range (e.g., $42–$48) and a target size (e.g., 5M shares)
- Holders elect their shares + their minimum acceptable price
- After expiration, the depositary aggregates elections in ascending price order
- The clearing price is the lowest price at which cumulative tendered shares ≥ target size
- All accepted holders receive the clearing price (not their elected minimum)
Why companies use it
- Price discovery — lets the market signal the right price
- Fairness — uniform clearing price for all accepted shares
- Avoids overpaying — if shareholders are willing to sell below the cap
Use cases
Predominantly issuer tender offers (buybacks). Also used by some private companies for employee-tender pricing.
Distinction
A fixed-price tender offer specifies a single price upfront. A Dutch auction discovers the price during the offer.