Suppose a firm finds itself as the target of a possible hostile takeover. An outsider investor has acquired a major stake of shares and is threatening to exert influence on the board.
If the firm wants to influence the hostile bidder to leave it alone, which of the following methods could be an effective way of doing so?
1. Direct negotiation
2. Tender offer
3. Auction
4. Open-market transaction

A tender offer is an offer to buy all or part of the stock held by shareholders in a corporation. The majority of the time, tender offers are issued publicly and ask owners to sell their shares for a predetermined price and within a predetermined window of time. The price being offered is typically above the market price and is frequently subject to a minimum or maximum number of shares being sold. Inviting bids for a project or accepting a formal offer, such as a takeover proposal, is referred to as a tender. An exchange offer is a specific kind of tender offer in which shares are exchanged for securities or other non-cash alternatives.

For its own shares, the target business may make a tender offer that is a share repurchase. As a result, the target's capital structure uses more leverage, forcing the acquirer to boost its offer to remain competitive with the target's offer. When the acquirer is very confident in the cash flow and value that will result from the merger, it is more likely to push for a cash offering; however, when cash flow is unstable, it will opt for a security offering. As a result, if the business cycle is unstable, the company will use stock repurchase.

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