An investor sells a portion of a stock holding short a tender offer in the anticipation that not all shares tendered will be accepted. For example, investor Q has 5000 shares of XYZ. An acquiring company makes a tender offer of $100 a share for 50% of the target company when the shares are currently worth $80. Investor Q anticipates that if he or she tenders all 5,000 shares, only 2,500 will be accepted by the bidder pro rata. Investor Q therefore short-sells 2500 shares after the announcement and the price of the stock has approached $100. Company XYZ purchases only 2500 of the original shares at $100. Investor Q has sold all shares at $100 even as the price of the stock drops on a post-news dip.
During a tender offer, the act of selling short shares one already owns. A tender offer is an offer by an outside party to buy some or all of a shareholder's shares in a company, usually for more than their market value. If a shareholder receives a tender offer, he/she may make a hedged tender in order to protect himself/herself from the risk that the tender offer will be canceled. The hedged tender is made at the same price as the tender offer, which locks in the shareholder's profit regardless of what happens to the tender offer.
An investor's tender of securities accompanied by the short sale of a portion of the securities tendered. The short sale hedges the possibility that not all the tendered securities will be accepted by the buyer and that the value of those securities not accepted will be less than the tender price.