The original bear hug. Image Credit: Bob Harmans (CC by 2.0)
A bear hug (not to be confused with a bear market) is when a company offers to buy the shares of another company at a price far in excess of their market value. Though this may seem generous, a bear hug often comes unsolicited, and may be offered at a time when the company’s management is reluctant to sell. By making such a generous offer, the target company’s management is essentially forced to sell the shares since they are legally obligated to act in the best interest of the shareholder. Indeed, if the bear hug is refused, it may result in a lawsuit made against the target company’s management by the shareholders.
Since bear hugs put the target company’s management in a tight spot, they are often considered to be a form of hostile takeover. However, unlike other forms of hostile takeover, bear hugs result in a large benefit for the shareholders. The acquiring company may even add extra incentives to sweeten the deal.
Recent Comments