Legal Definitions - bear hug

A bear hug is a strategy used in corporate takeovers where one company (the acquirer) makes a very attractive, often unsolicited, offer to buy another company (the target). The offer price is typically significantly higher than the target company's current market value, putting immense pressure on the target's board of directors and shareholders to accept. The intention is to make the offer so compelling that the target company finds it difficult to refuse, effectively "squeezing" them into an acquisition.

• Example 1: Tech Startup Acquisition
  "InnovateTech," a large software conglomerate, wants to acquire "CodeCrafters," a smaller, innovative app development firm. CodeCrafters isn't actively looking to sell, but InnovateTech publicly announces an offer to buy all CodeCrafters shares at 50% above their current trading price. This high offer creates immediate pressure on CodeCrafters' board, as shareholders would likely be eager to accept such a lucrative deal, making it hard for the board to justify a refusal.

  This illustrates a bear hug because InnovateTech's offer is unsolicited and significantly above market value, designed to force CodeCrafters into accepting the acquisition due to the overwhelming financial appeal to its shareholders.

• Example 2: Retail Chain Takeover
  "MegaMart," a national retail giant, sets its sights on "LocalGrocer," a regional supermarket chain that has consistently rejected previous, lower acquisition inquiries. MegaMart then makes a public "all-cash" offer for LocalGrocer's shares at a premium that is 40% higher than what the shares were trading for before the announcement. This move is intended to bypass LocalGrocer's management and appeal directly to its shareholders, who would see a substantial financial gain.

  This is a bear hug because MegaMart is using an exceptionally high, public offer to pressure LocalGrocer's board and shareholders into accepting the takeover, despite LocalGrocer's prior reluctance to sell.

A reverse bear hug is a defensive tactic employed by a target company when it receives an unsolicited, high-priced takeover offer (a "bear hug"). Instead of outright rejecting the offer, the target company's management or board indicates a willingness to negotiate but then demands an even higher price than the already generous offer. This maneuver is often used to make the acquisition prohibitively expensive for the bidder, hoping to deter them, or to extract an even greater premium if the bidder is truly determined.

• Example 1: Pharmaceutical Company Defense
  "BioPharma Innovations" receives a bear hug offer from "Global Health Corp" to acquire it at a significant premium. BioPharma's board, not keen on being acquired but wanting to appear open, responds by stating they would only consider a sale if Global Health Corp increased its offer by another 25%, making the total price astronomically high. This is a strategic move to either scare off Global Health Corp or force them to pay an exorbitant amount.

  This is a reverse bear hug because BioPharma Innovations, as the target, is responding to an attractive offer by demanding an even higher, potentially unreasonable, price to either deter the acquirer or maximize its own value.

• Example 2: Manufacturing Firm's Counter-Tactic
  When "Industrial Giants Inc." launches a bear hug bid for "Precision Parts Co.," offering a substantial premium, Precision Parts' management publicly announces that while they are "evaluating all options," any acceptable offer would need to reflect the company's long-term growth potential, implying a price far exceeding Industrial Giants' current bid. Their intent is to make the deal less appealing or too costly for Industrial Giants.

  Precision Parts is using a reverse bear hug by acknowledging the bid but immediately signaling that the price is insufficient and demanding a much higher valuation, aiming to either ward off the bidder or secure a significantly better deal.