A takeover technique within which a possible acquirer proposes to shop for the stock of another company at a considerably higher price than the target is worth is understood as a bear hug.
The acquirer makes a big offer to shop for the corporation for a price that’s above the opposite bidders. A “bear hug” is the act of physically wrapping one’s arms around another person in such a way that they’re held very closely and are unlikely to be ready to “escape” the hug.
The bear hug approach is employed in mergers and acquisitions to form the target firm nearly incapable of fleeing the takeover effort.
Once again, the acquirer makes a particularly generous offer to the company, well exceeding what the corporate would likely receive if it were actively seeking a buyer.
Because the board of directors is legally certain to act within the best interests of the shareholders, management is unable to show down a suggestion that adds significant value to the company’s owners.
If successful, a bear hug has the capacity to distract management and directors of the targeted organisation, ultimately harming the company’s business and every stakeholder, including the bear hugger.
A bear hug, whether explicitly or implicitly, brings critical attention to the company’s current management and stock price.
The potential of a better share price on offer benefits shareholders of a corporation experiencing a bear hug.
A bear hug puts pressure on a company’s board and management to urge the share price above that proposed by the bear hugger, whether it doesn’t lead to a speedy agreement.
Although a bear hug could be a sort of takeover, it’s intended to place the target company’s stockholders in an exceedingly better financial position than before the takeover.
To place it otherwise, while the takeover is also aggressive, the buying offer is welcoming. If the board refuses to simply accept the offer, shareholders who are cheated out of a maximum return on their investment may file a lawsuit.
If the board of directors refuses to simply accept the offer, the acquirer may favour to propose it to the shareholders directly.