A bidder commences a partial tender offer for 51% of a target company's outstanding shares. More than 51% of the shares are tendered. Under SEC rules, how must the bidder handle the oversubscription?

AThe bidder must accept all tendered shares on a first-come, first-served basis
BThe bidder must purchase shares on a pro rata basis from all tendering shareholders✓ Correct answer
CThe bidder may select which shareholders to purchase from at its discretion
DThe bidder must increase the offer to purchase all tendered shares

Explanation

Why B — The bidder must purchase shares on a pro rata basis from all tendering shareholders

Under SEC Rule 14d-8, when a partial tender offer is oversubscribed, the bidder must purchase shares on a pro rata basis from all tendering shareholders rather than on a first-come, first-served basis or at the bidder's discretion. This pro rata requirement ensures that all tendering shareholders are treated fairly and prevents the bidder from cherry-picking which shareholders to purchase from. The proration is based on the number of shares tendered by each holder relative to the total shares tendered.

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