What is Bear Hug?
A bear hug is a business term that describes an offer to buy a company at a much higher price than its current market value. This is how a company forces the target company’s board to accept the deal or face the anger of its shareholders. A bear hug is usually unsolicited and hostile, meaning that the target company is not looking for a buyer or does not want to be acquired by the bidder. A bear hug can be seen as a friendly offer for the shareholders, but a hostile one for the management and board of the target company.
Bear Hug Explained
A "bear hug" is a hostile takeover tactic in the world of mergers and acquisitions. It involves an acquiring company making a generous offer to buy a large number of shares of the target company at a premium price, significantly higher than the current market value.
This offer is designed to put intense pressure on the target company's board of directors to accept the deal. The acquiring company may also publicly announce the offer, further increasing the pressure by appealing directly to the target's shareholders.
The high premium offered makes it difficult for the board to reject the deal, as their primary responsibility is to act in the best interests of the shareholders. Refusing the offer could lead to negative shareholder sentiment, lawsuits, and damage to the target's reputation.
Therefore, the bear hug is a powerful tool used to force target companies into accepting a takeover, especially when they have previously rejected offers or are likely to do so again. It effectively eliminates competitors from the bidding process due to the high premium offered.
While not always successful, the bear hug remains a significant and aggressive tactic in the M&A landscape.
Example of Bear Hug
One example of a bear hug was when Reliance Industries made an unsolicited offer to buy a 26% stake in LyondellBasell, a Dutch chemical company, in 2009. Reliance offered $12 billion, which was more than twice the market value of LyondellBasell at the time. However, LyondellBasell rejected the offer, saying it preferred to emerge from bankruptcy as an independent company. Reliance later dropped its bid after LyondellBasell secured a deal with its creditors.
Another example of a bear hug by an Indian company was when Tata Steel acquired Corus, a British steelmaker, in 2007. Tata Steel offered 608 pence per share, which was a 34% premium over Corus’s market value at the time. The offer was accepted by Corus’s board and shareholders, making it the largest overseas acquisition by an Indian company at the time. Tata Steel paid $12.1 billion for Corus, which was nearly five times its own market capitalization.