Bear Hug

In the business world, there are several methods of taking control of a company. One method is popularly known as the bear hug. Basically, the bear hug is a hostile takeover attempt that is made in such a way that the company's board of directors finds it impossible not to accept the offer. Here is some information on how a bear hug can take place and what can happen if a board tries to block the move.

Bear Hug strategy

The basic strategy of the bear hug generally involves an attempt to acquire a company that is not currently for sale. Investors take note of a company that is consistently performing well and decide to take steps to acquire that company. In many cases, an initial offer may have been rejected. This leads to the implementation of more aggressive methods that are designed to lead to the eventual acquisition of the company, whether the company's board of directors likes it or not.

In order to carry out this type of hostile takeover, bear hugging requires the support of the company's shareholders. Gaining shareholder support usually involves convincing shareholders that their investment will appreciate in value as a result of the takeover. In some cases, a bear hug requires the acquisition of a controlling number of shares as a means of pressuring the board of directors to sell. Once the investor or a group of investors hold a majority of the shares, it becomes very difficult indeed for the board to do anything other than submit to the sale of the company.

Corporate raiders have long used the bear-hug strategy as a means of acquiring a company and then systematically dismantling the operation. By acquiring a company and selling its assets, equipment, and property, the predator can often make an impressive profit from the enterprise. Acquiring a controlling interest in the company allows the raider to convince other shareholders that a failure to align with the sale could lead to the devaluation of their shares, which means they eventually lose money on the deal. This is usually enough to take care of any shareholder resistance and pave the way for the bear hug to finally come true.

How do companies protect themselves from Bear Hug?

While the bear hug is often successful, companies have managed to avoid this type of situation. When it appears that a corporate raider is acquiring an excessive amount of stock, steps can be taken to minimize the amount of influence the raider can exert over the board of directors and other shareholders. In some countries, raiders must submit documents to the local government when acquiring a certain percentage of available stock. These documents outline the raider's intention to acquire the company and are made available to the current ownership. When early steps are taken in the process, it is possible to avoid a hostile takeover and thus defuse the bear hug before it ever has a chance to damage the company's operations or reputation.