In Finance, a letter of transmittal is a cover letter that accompanies an important or significant document. For example, it is used by a security holder to accompany security certificates when surrendered in an exchange or a corporate action or accompanying an “offer to purchase” in the case of mergers and acquisitions. The letter is similar to a cover letter but with an established and recognizable structure. This makes the format ideal for business and finance, especially mergers & acquisitions. A transmittal letter is a business letter and is formatted accordingly. Generally, the letter will include the following information
- recipient’s address
- sender’s address
- distribution list
- a salutation and closing
- why it should receive the reader’s consideration
- what the reader should do with it
This provides the recipient with a specific context in which to place the larger document or certificate and simultaneously gives the sender a permanent record of having sent the material.
Simply including only the above information by nature makes a letter of transmittal a brief document. Longer transmittal letters may include a summary of the key elements contained in the document it accompanies but this is rarely longer than a few sentences. Letters of transmittal are customarily ended with a single sentence paragraph. This should thank or compliment the recipient on the matter at hand to assist in establishing goodwill.
Transmittal Letter in Use
As part of an SC TO-T document filed with the SEC on February 24, 2020, Instructure (INST) included a copy of the letter of transmittal accompanying the offer document. The document clearly states,
This Letter of Transmittal is to be used by stockholders of Instructure, Inc., a Delaware corporation (the “Company”) for delivery if certificates for Company Shares (“Share Certificates”) are to be forwarded herewith, or if delivery of Company Shares is to be made by book-entry transfer at the Depositary (pursuant to the procedures set forth in Section 3 of the Offer to Purchase).
This example document contains the information as suggested in the bullet points above with the reasons and instructions clearly set out. However, although it is important traders are aware this type of document exists, it is rarely used in modern trading. Stock transfers are now commonly done electronically without the need for signed forms and physical documents. Should ownership still be maintained via a physical share certificate, then completion of a letter of transmittal will be required in mergers and acquisitions situations similar to this one.
