Legal Definitions - reverse bear hug

A reverse bear hug in the context of corporate finance and mergers and acquisitions describes a highly unusual and often aggressive maneuver. It occurs when a company that is typically considered the target of an acquisition attempt, or a smaller entity, turns the tables and makes an unsolicited, highly attractive offer to acquire its potential acquirer, or a significant part of it. This strategy is designed to put immense pressure on the board of directors of the larger or pursuing company, forcing them to consider being acquired themselves or selling off valuable assets, even if they had no prior intention of doing so. The offer is typically structured to be so financially compelling or strategically advantageous that it becomes difficult for the larger company's board to reject without facing significant shareholder scrutiny.

• Example 1: Defensive Counter-Bid

  Imagine "InnovateTech," a smaller, rapidly growing software company, is the subject of a hostile takeover bid by "Global Conglomerate," a much larger diversified corporation. InnovateTech's board believes Global Conglomerate's offer significantly undervalues their company. Instead of merely rejecting the bid, InnovateTech, having recently secured substantial investment, launches a surprise counter-offer to acquire Global Conglomerate's entire cloud computing division. InnovateTech's offer is at a premium to the division's market valuation and includes attractive terms for Global Conglomerate's shareholders. This move constitutes a reverse bear hug because the smaller target company is now attempting to acquire a significant part of its larger pursuer, forcing Global Conglomerate's board to seriously evaluate selling off a key asset rather than continuing their own acquisition attempt.

• Example 2: Strategic Acquisition by a Smaller Entity

  Consider "BioGenius," a cutting-edge biotech startup known for a revolutionary new drug discovery platform. "PharmaGiant," a much larger pharmaceutical company, has been subtly trying to acquire BioGenius for months, making low-ball offers. Frustrated by PharmaGiant's persistent but undervalued proposals, BioGenius's leadership, backed by a consortium of venture capitalists, decides to make an unsolicited, all-cash offer to acquire PharmaGiant's entire oncology research division. BioGenius's offer is so generous and strategically aligned with PharmaGiant's long-term goals that it creates a dilemma for PharmaGiant's board: accept a lucrative deal for a division they might have considered selling anyway, or continue their pursuit of BioGenius while potentially missing out on a significant financial gain. This demonstrates a reverse bear hug as the smaller, targeted company initiates an acquisition of a valuable part of its larger suitor.