Define Bear Hug

What Is a Bear Hug, Exactly?

A bear hug is an offer made by one firm to purchase the shares of another for a considerably greater price per share than the market value of that company. It's an acquisition method that firms employ when they're unsure whether the target company's management or shareholders would sell.

The bear hug offer is frequently unsolicited by the target firm, despite the fact that it is usually financially advantageous.

The word "bear hug" refers to the providing company's extremely generous offer to the target company's persuasiveness. The offering party may generally achieve an acquisition agreement by proposing a price well in excess of the target company's existing value. Because it is legally required to look out for the best interests of its shareholders, the target company's management is practically compelled to accept such a substantial offer.

Bear Hugs: An Introduction

To qualify as a bear hug, the purchasing corporation must make an offer for a big number of a business's shares that is considerably over market value.

A company may try a bear hug in order to avoid a more hostile takeover attempt or one that would take substantially longer to accomplish. A bear hug might be used by the acquiring corporation to minimise competition or to purchase items or services that complement its existing offers.

TAKEAWAYS IMPORTANT

A bear hug is a type of acquisition technique that is comparable to a hostile takeover but is generally more profitable for shareholders.

The target firm is usually unresponsive to a bear embrace.

If a target firm declines to accept a bear hug offer, shareholders may sue the company for failing to act in their best interests.

Because the target firm is obligated to act in the best interests of its shareholders, it is frequently forced to consider the offer seriously, even if there has been no prior plan to change the business model or indication that it is seeking a purchase.

Bear hug proposals are often made to faltering organisations or startups in the aim of purchasing assets with higher future worth. Companies that do not show any financial demands or troubles, on the other hand, may be targeted.

The Benefits and Drawbacks of a Bear Hug

A bear hug can be viewed as a hostile takeover effort by the firm making the offer, as it is aimed to force the target company to accept the acquisition. Unlike certain other types of hostile takeovers, however, a bear hug frequently leaves shareholders in a better financial position.

To boost the chances of the target firm accepting the offer, the purchasing company may provide additional incentives. As a result, a bear hug can be quite costly for the acquiring firm, and it may take longer than typical for the company to achieve a return on investment.

If the target firm fails to adequately justify its rejection to accept the bear hug offer, the shareholders may initiate a lawsuit on their behalf. Because the company has a responsibility to its shareholders, turning down an offer that appears to be too good to be true might be viewed as a negative move.