Bear Hug
Candlefocus EditorIn general, a bear hug offer is considered a friendly takeover. The suitor assumes that the shareholders of the target company, who may be the victims of "greenmail" or other potential corporate raiding schemes, will be receptive to such an offer because they may view it as financially attractive and emotionally appealing. Generally, a bear hug offer is made at a premium to the stock's current value, and it typically includes advantageous terms like warrants, options, and other securities.
The bear hug can also be contrasted with the hostile tender offer, which is a legally binding offering that cannot be rejected. In contrast, if a target company refuses to accept a bear hug, there may be legal challenges brought by shareholders against their board of directors.
Ultimately, a bear hug may or may not be successful in acquiring the target company. It is an expression of the bidder's desire to acquire the company and is not legally binding. Should the target company refuse the offer, the bidder may make a tender offer but it is not guaranteed that the same terms and conditions of the bear hug will be accepted by the shareholders and board of directors of the target company.
For potential bidders, the bear hug gives a controlled auction of their offer, allowing them to demonstrate their determination to acquire the target and a gauge response from shareholders and the board. For potential target companies, the bear hug gives them the potential to optimise the offer price, via a potential bidding war, while the board maintains control over the process of a potential change in ownership.