Oversubscription and pro-rata allocation

Direct answer

If the total shares elected by sellers exceeds the program’s available size, the offer is oversubscribed. Private-company tender offers almost always handle this with pro-rata allocation: every electing seller’s tendered shares are scaled down by a uniform factor.

The factor is straightforward:

allocation_factor = total_accepted_shares / total_tendered_shares

Each seller’s accepted shares = tendered_shares × allocation_factor. The remaining tendered shares are returned to the seller’s holdings, unsold.

A worked example

Suppose:

• The offer can buy 10,000,000 shares
• Eligible sellers tender 14,000,000 shares in aggregate

allocation_factor = 10,000,000 / 14,000,000 ≈ 0.7143

A seller who tendered 1,000 shares is allocated 1,000 × 0.7143 ≈ 714 shares; 286 shares remain in their holdings.

Why pro-rata is the default

It is the simplest fair rule. Every seller is treated identically, with the same scaling applied to all. Any other rule (first-come, tiered, discretionary) introduces complexity and litigation surface.

A handful of programs use auction-like mechanics where a clearing price is determined by aggregating bids; these are rare in employee tender offers.

What sellers should plan for

• If you only want a target dollar amount, your effective participation depends on both the price and whether the offer is oversubscribed
• Communicate elections clearly — partial elections at well-understood caps usually fare better than blanket “max” elections that do not match the per-seller cap
• The unsold portion of your tendered shares stays in your cap-table position; nothing is lost, only the liquidity is partial

What companies plan for

• Realistic oversubscription scenarios are modeled before launch
• The per-seller cap is set so that small holders can’t be diluted to triviality by enormous holders’ elections
• The information agent’s cadence is tuned to give all eligible sellers an equal chance to participate

Educational reference only — read the offer-to-purchase for binding allocation rules.