Bear Hug

What is a Bear Hug?

Definition

In business, a bear hug is a type of acquisition strategy used to acquire target companies. It is an offer made by a company that intends to buy the shares of a target company at a very high rate compared to its actual worth, thereby, beating the competition. It is a type of hostile takeover that benefits the shareholders of the target company.

Other information

In a bear hug, it is not always necessary that a target company is seeking to sell the majority of its shares or looking for buyers, acquiring companies go out of their way to force an acquisition by making “mouth-watering” offers regardless of the state of the company. Thereby, making this type of acquisition offer and unsolicited offer.

It also has to do with the persuasiveness and over-generosity of the acquiring company to the shareholders and board of directors of the target company by offering them a price that worth far beyond the company’s current value.

A bear hug is referred to as a type of hostile takeover because it literally forcefully throws its offer at the target company leaving its board of directors with little or no choice but to accept the acquisition offer. If there is an offer declined by the target company’s board of directors, they risk facing a lawsuit by the company shareholders as they are expected to always look out for the best interests of the shareholders.

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Advantages of Bear Hug

• It puts the shareholders of the target company in a better financial position compared to the previous position

• It gives the acquiring company competitive advantage over other acquisition bidders

Disadvantages of Bear Hug

• It is a hostile takeover which can go to any financial limit to acquire a target company

• It is extremely expensive for the acquiring company as it must include attractive incentives for the target company to accept the offer

• The board of directors of the target company can attract a lawsuit from the shareholders if there is no justifiable reason for refusing the bear hug offer.

  
  

  The term bear hug in finance is used when describing some type of company acquisition. For example, if a company W wants to acquire company D with a robust offer that is more than what the company that being acquired is worth.

  This is a type of Bear hug acquisition offer, in most cases, the company being acquired is unable to resist the offer. Example, When Facebook Acquired Instagram, Instagram was worth much lower than what Facebook paid for it.

  Bear hug in finance is a financial term that all investors should be familiar with.