Definition
The tender offer premium is the markup of the offer price over the target’s pre-announcement market price. Calculated as:
premium = (offer_price - reference_price) / reference_priceReference points
Practitioners typically benchmark against several reference prices to triangulate the “real” premium:
- Spot — last unaffected trading day before announcement
- 1-day prior — day before announcement
- 30-day VWAP — volume-weighted average over the 30 trading days before announcement (filters short-term noise and rumored-deal price impact)
- 52-week high — comparison to peak prior price
Typical ranges
- Friendly U.S. public-company deals — typically 25–40% premium to the 30-day VWAP
- Hostile deals — often higher (40%+) because the bidder needs to overcome board resistance
- Going-private transactions — premiums vary widely; conflicted controllers face Revlon-style scrutiny if premiums look thin
Why it matters
The premium is the headline number in every deal announcement. Boards justify their recommendation in part by reference to it; activists and litigants attack deals where the premium looks low relative to comparable transactions.