In Business, what is a Bear Hug?

In the business world, there are a number of methods of assuming control of a business. One method is popularly known as the bear hug. Essentially, this is a hostile takeover attempt that is done in such a ways that the board of directors of the company find it impossible to not accept the bid.

The basic strategy of the bear hug generally involves the attempted acquisition of a company that is currently not for sale. Investors take note of a company that is consistently performing well, and decide to take step 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 board of directors of the corporation like it or not.

In order to accomplish this type of hostile takeover, the bear hug requires the support of the shareholders in the company. Obtaining shareholder support usually involves convincing the shareholders that their investment will appreciate in value as a result of the acquisition. In some cases, a bear hug requires the acquisition of a controlling number of shares as a means of bringing pressure to sell on the board of directors. Once the investor or a group of investors holds the majority of shares, it becomes very hard indeed for the board to do anything but submit to the sale of the company.

Corporate raiders have long employed the strategy of the bear hug as a means of acquiring a company and then systemically dismantling the operation. By acquiring a company and selling off its assets, equipment, and property, the raider can often make an impressive profit from the venture. Acquiring a controlling interest in the company makes it possible for the raider to convince other shareholders that a failure to align with the sale could lead to the devaluation of their shares, meaning they ultimately lose money on the deal. This is usually enough to take care of any resistance on the part of the shareholders, and clear the way for the bear hug to finally come to pass.

While the bear hug is often successful, companies have managed to avoid this sort of situation. When it seems that a corporate raider is acquiring an inordinate amount of stock, steps can be taken to minimize the amount of influence that the raider may assert on the board and the other shareholders. In some countries, raiders have to file papers with the local government upon acquiring a certain percentage of available stocks. These papers outline the intent of the raider to acquire the company, and are made available to the current ownership. When steps are taken early 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 operations or reputation of the company.