Bear Hug
A bear hug is an offer to buy a publicly listed company at a significant premium to the market price of its shares. It is an acquisition strategy designed to appeal to the target company's shareholders. Bear hugs are used to pressure a reluctant company's board to accept the bid or risk upsetting its shareholders. Unsolicited in nature, a bear hug bidder makes it difficult for the target's board to refuse by offering a price well above the pursued company's market value.
Bear Hug
Definition
A bear hug refers to the acquisition of a publicly traded company at a price significantly higher than its market stock price. This is a strategy aimed at attracting the target company's shareholders. A bear hug is used to pressure a reluctant company's board of directors to accept the acquisition offer, or risk angering its shareholders. As an unsolicited offer, the bear hug bidder offers a price far above the target company's market value, making it difficult for the board to refuse.
Origin
The term bear hug originated in the United States in the 1980s, a period marked by frequent corporate mergers and acquisitions. As some company boards were unwilling to accept acquisition offers, bidders began using this high-premium strategy to force the target company to accept the acquisition.
Categories and Characteristics
Bear hugs can be classified into friendly bear hugs and hostile bear hugs. A friendly bear hug occurs when the bidder and the target company's board reach an agreement and cooperate to complete the acquisition. A hostile bear hug, on the other hand, occurs when the bidder directly makes a high-premium offer to the shareholders despite opposition from the target company's board.
The main characteristics of a bear hug include: high premium, direct offer to shareholders, and pressure on the board. Its advantages are the ability to quickly gain shareholder support, while its disadvantages include high costs and potential legal and regulatory issues.
Case Studies
Case 1: In 2008, Microsoft made an offer to acquire Yahoo for $31 per share, totaling $44.6 billion, a price significantly higher than Yahoo's market price at the time. Although Yahoo's board initially rejected the offer, multiple negotiations took place due to shareholder pressure.
Case 2: In 2014, Valeant Pharmaceuticals made an offer to acquire Allergan for $180 per share, also significantly higher than Allergan's market price. Despite opposition from Allergan's board, Allergan was eventually acquired by another company, Actavis, under shareholder pressure.
Common Questions
1. What is the difference between a bear hug and a regular acquisition?
The key difference is that a bear hug involves a high premium and a direct offer to shareholders, whereas a regular acquisition typically involves negotiations with the board.
2. Is a bear hug guaranteed to succeed?
Not necessarily. While a high premium can attract shareholders, a bear hug may fail if the target company's board and management strongly oppose it or if there are better acquisition offers.
