One-Step Mergers vs Two-Step Tender Offers
A one-step merger asks target shareholders to vote once, on a slower timeline; a two-step tender offer buys shares directly from shareholders first and squeezes out the rest afterward, closing faster if enough shareholders tender.
Prerequisites: The M&A Deal Process End to End
An acquirer that has agreed a friendly deal with a target's board still has to actually get the target's shares into its hands, and there are two structurally different ways to do that: hold a formal shareholder vote on a merger, or go directly to shareholders with an offer to buy their shares. The choice mostly comes down to speed.
A one-step merger requires a shareholder vote and a proxy statement, typically taking two to four months; a two-step tender offer buys shares directly from shareholders who choose to tender, and can close in as little as three to four weeks if enough shareholders participate, followed by a fast squeeze-out merger to mop up the rest.
The one-step merger
In a one-step merger, the acquirer and target sign a merger agreement, the target prepares a proxy statement disclosing the deal to shareholders, and a shareholder vote is held — typically requiring approval from a majority of outstanding shares. Preparing and mailing the proxy statement, plus the required waiting period before the vote, takes real time, often two to four months from signing to closing, even before accounting for antitrust review. Once approved, all shareholders are automatically converted into the merger consideration at the same time; there's no partial step.
The two-step tender offer
In a two-step tender offer, the acquirer instead makes a direct tender offer to target shareholders — an offer to buy their shares at a stated price, open for a minimum period (usually at least 20 business days under SEC rules). If enough shares are tendered to cross a threshold — often 90%, sometimes lower where state law allows — the acquirer can complete a fast, second-step squeeze-out merger to force out the remaining shareholders at the same price, without a formal shareholder vote at all. Because there's no proxy statement or shareholder meeting required to clear the tender itself, this route can close considerably faster than a one-step merger.
Worked example
An acquirer wants to buy a target trading at $40 for $50 per share.
- One-step route: the deal is announced, a proxy statement is drafted and filed, mailed to shareholders, and a shareholder meeting is scheduled roughly 60-90 days out. If a majority of outstanding shares vote yes, the merger closes and all shareholders receive $50, whether they voted or not.
- Two-step route: the acquirer instead launches a tender offer at $50 per share, open for 20 business days. If shareholders holding 92% of shares tender into the offer, the acquirer now controls enough of the company to complete a short-form squeeze-out merger under state law within days, cashing out the remaining 8% at the same $50 without any separate shareholder vote — potentially closing a month or more faster than the proxy route would have.
What this means in practice
Two-step tender offers are more common in all-cash friendly deals, where speed reduces the target's exposure to interloper bids and market risk during the pendency of the deal; one-step mergers remain more common for stock deals (which require more extensive disclosure anyway) and for deals where the acquirer isn't confident of hitting the tender threshold needed to squeeze out remaining holders cheaply.
A tender offer's success is not guaranteed just because the board supports the deal — if too few shareholders tender to reach the squeeze-out threshold, the acquirer can be left holding a large but non-controlling stake, which is why acquirers sometimes condition the tender offer on reaching a minimum tender percentage before proceeding at all.
Further reading
- Rosenbaum & Pearl, Investment Banking (ch. on M&A structuring)