Bear Hug

A bear hug is a hostile takeover attempt in which the acquiring company makes a very low offer for the target company in an effort to force the target's board of directors to accept the offer. The term "bear hug" is derived from the fact that the acquiring company is attempting to "hug" the target company to death by making it so difficult for the target company to continue operating as a stand-alone entity that the target's board of directors will have no choice but to accept the offer.

There are a number of reasons why an acquiring company might use a bear hug approach. First, a bear hug can be used to avoid a bidding war. If the acquiring company makes a very low offer, it is less likely that other potential acquirers will be interested in the target company. This can save the acquiring company a lot of money, as it will not have to compete with other bidders for the target company.

Second, a bear hug can be used to pressure the target company's board of directors into accepting the offer. If the acquiring company makes a very low offer, it can put the target company's board of directors in a difficult position. The board of directors may be reluctant to accept the offer, but they may also be concerned about the impact that a rejection of the offer will have on the target company's stock price and its ability to continue operating as a stand-alone entity.

Third, a bear hug can be used to force the target company to enter into negotiations with the acquiring company. If the acquiring company makes a very low offer, it can force the target company to come to the table and discuss the possibility of a sale. This can give the acquiring company an opportunity to improve its offer and increase the chances of completing the acquisition.

Bear hugs are often controversial. Some people believe that they are a form of corporate bullying. Others believe that they are a legitimate way for acquiring companies to acquire target companies. Ultimately, the legality of a bear hug depends on the specific circumstances involved.