A majority owners of a company did some actions that the Financial and Capital Market Commission found sketchy. They ended up with an agreement: owners had to make a good offer (more than +50% compared to the price at the moment) to buy all the shares they didn't yet own.

Initially they had around 50% shares, after the mandatory redemption they had almost 93%.

Would most index funds sell their shares to this offer? Or they ignore any events and their shares would be among the 7% that didn't get sold?

  • If the redemption is mandatory, then the index fund can't refuse to sell. The 7% not sold in your example were probably insider shares held by executives, or in the employee stock plan fund, or something like that.
    – The Photon
    Jul 16 '19 at 18:14
  • @ThePhoton the redemption was mandatory to offer. I.e. these people had to gather money and offer to buy everything from everyone at a high price set by the commission. Nobody was forced to sell.
    – Džuris
    Jul 16 '19 at 18:36
  • It's certainly possible to force minority shareholders to sell.
    – The Photon
    Jul 16 '19 at 18:41
  • @ThePhoton in this case making the offer was a punishment in addition to fine. AFAIK the family sold their shares directly to a company they own for a price above the market price. The commission decided it was unfair to other shareholders and made them offer everyone a nice price decided by commission.
    – Džuris
    Jul 16 '19 at 19:06
  • If you want that information considered in the answers you get, you should edit your question to include the information.
    – The Photon
    Jul 16 '19 at 19:17

It depends.

Actively managed funds which aren't tasked with following a specific index would certainly sell their shares in a situation like this.

Passive funds which track an index would, naturally, follow what the index does.

  • I was wondering if the passive ones ignore even the direct offers like that. Thanks, so that probably explain most of the shares not sold to them.
    – Džuris
    Jul 16 '19 at 17:29
  • 1
    Of course, one must wonder how many indices that company is in...
    – RonJohn
    Jul 16 '19 at 17:47
  • Even companies in the S&P500 get bought out occasionally.
    – The Photon
    Jul 16 '19 at 18:31
  • 2
    @ThePhoton and then the index changes, so the passive fund changes.
    – RonJohn
    Jul 16 '19 at 18:33
  • 1
    No, there is an index like the S&P500. Standard & Poors made an index called the 500. There is a 10 page document that determines what is included in the index and how much of each piece is included, this is the methodology of the index. There are a number of funds that seek to track the 500. They take the 10 page methodology document and just follow what it says. They don't decide that the 5th stock in the index should be omitted because it has too much debt or to transact on a buyout offer because they are doing nothing more than following the methodology of the index they are tracking.
    – quid
    Jul 16 '19 at 23:03

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