Successful companies are sometimes poached by larger organizations in mergers. When those seeking to acquire a business that is not for sale, one acquisition strategy they might employ is known colloquially as a “bear hug.”
The information below can help company leaders understand the strategy and how to respond to shareholders.
Bear hugs increase the pressure to sell
Publicly owned companies have the responsibility to their shareholders to act in the best interests of the company. So, bear hug offers exert pressure on the board of directors of companies to accept the bid because the company offers more than the market value of the shares.
What happens after the bear hug?
The important thing to keep in mind is that there is always room for negotiation even after a bear-hug offer is made. The offer is not a done deal, no matter how attractive it may seem to be to the shareholders.
When a company is the target, the board must act responsibly and consider the offer. Refusing to engage in negotiations can lead to litigation or being ousted from the board in an election.
Don’t go unarmed into a bear hug fight
Knowledge and information are two tools that board members and company leaders need when responding to a bear hug offer to acquire a business. Depending upon the financial circumstances of the company and the offer, there may be time enough to arrange for a white knight buyout with more favorable terms.
Learning more about your rights and responsibilities may leave you in a better position when presented with a bear hug offer from a potential buyer.