Australia: Will the bear hug replace the hostile takeover? Public M&As with target recommendations more popular than hostile takeovers

Last Updated: 30 March 2012
Article by Karen Evans-Cullen

Most Read Contributor in Australia, November 2017

Key Points:

It appears that the bear hug approach is replacing the hostile takeover bid, and regulators will no doubt take notice.

2011 saw a continuation of a recent trend for public M&A deals to be announced with an initial target recommendation and 2012 is likely to follow this same path. Seventy-five percent of all public M&A deals (including 59% of off-market takeovers) in 2011 were recommended by the target when announced.1

What is responsible for this trend? A target recommendation has always been highly sought after: they provide greater deal certainty, a headstart over any potential competitors, facilitate access to due diligence and are very persuasive to retail shareholders. A target recommendation also has a significant impact on the likelihood of success of a deal: in 2011, 86% of recommended deals completed successfully, whereas only 50% of deals which did not receive a recommendation completed successfully.

However, none of that explains the increasing incidence of target recommendations from the time of initial announcement. Rather, that is explained by the rise of the bear hug approach or virtual bid proposal. A bear hug or virtual bid proposal starts with an unsolicited proposal being made to the target. That unsolicited proposal is subsequently made public (either by the bidder or the target) before any transaction is actually announced.

Twenty-nine percent of all deals in 2011, including some of the largest deals for the year, commenced with a bear hug approach which was made public. In addition to these deals, there were a number of bear hug proposals announced which did not result in a deal. However, for those bear hug proposals which did lead to an announced transaction, 75% of those which had completed by the end of 2011 were successful.

Bear hugs are driven by the bidder's desire for target co-operation – particularly those bidders who wish to use a scheme of arrangement or who need to gain access to due diligence before committing to a deal. Forty-five percent of the scheme transactions in 2011 started with a bear hug proposal. This tactic is also commonly used where a bidder suspects it will not be welcomed with open arms by the target, requiring the bidder to use other strategies to put pressure on the target to let it in the door. In particular, the bear hug is used to bring the proposal to the attention of target shareholders in the hope that shareholders will pressure the board to negotiate with the bidder.

With the number of hostile takeover bids in decline in recent years, it appears that the bear hug approach is replacing the hostile takeover bid. Bidders that in the past would have made a hostile bid are now preferring to use a bear hug proposal to force a recommendation at the outset rather than commencing straight off the bat with a hostile takeover bid.

Of course, a bear hug approach will not always remove the need for a hostile bid. There are a number of examples where the bear hug was not sufficient to bring the target board to the table, with the bidder needing to resort to a hostile takeover bid in order to achieve that outcome. SABMiller's bid for Foster's Group was a good example. There the target board withstood the pressure from the bear hug proposal and the public and private agitation from some of its shareholders, forcing SABMiller to take its proposal directly to shareholders by way of a hostile takeover bid. The making of the hostile bid finally brought both the bidder and the target to the table, and the bidder was able to negotiate a recommendation from the target as well as implementation of the deal by a scheme of arrangement rather than a takeover bid, albeit for a 13% increase in its offer price.

While the increasing prevalence of such tactics has seen some in this market advocate the need for a "put up or shut up rule" (such as exists in the UK), the general sentiment in the market has generally supported the view of the Australian Takeovers Panel that there is no pressing need for such a rule in Australia. This is despite the fact that the UK Takeovers Panel in 2011 tightened its rules further to reduce the period of time that a target can be exposed to a virtual bid without any actual bid eventuating.

While there does appear to be an increasing propensity for shareholder activism where a target board rejects a bear hug proposal and there is board and management distraction in dealing with that, there does not seem to be any evidence that boards of Australian targets are constrained in running the business of the company in its usual course or are otherwise being held hostage by the existence of a rejected virtual bid. The Takeovers Panel's "Frustrating Action" policy allows targets to press ahead with initiatives which might otherwise appear to frustrate a virtual bid. Complying with this policy enables the boards of Australian targets to carry on business as usual as well as implement important strategic objectives, thus obviating the need for any new rules.

The increasing use of bear hug approaches by private equity may however cause the regulators to think twice about this position. As we saw in the case of the SABMiller bid for Foster's and Peabody/Arcelor Mittal's bid for Macarthur Coal, most bidders have available to them the means of bringing the matter to a head if the bear hug approach does not result in engagement from the target. For most bidders, if the bear hug approach fails, the next step is the hostile takeover bid which effectively bypasses the target board and takes the proposal directly to target shareholders. Private equity bidders generally don't have the ability to do this, because they need the target to provide access to due diligence before they, or their financiers, can commit to a deal.

The result can often be a stalemate – the target refuses to grant due diligence at the price being offered, some target shareholders agitate for the board to do all that is necessary to allow the bidder to put a binding proposal on the table, the target board and management faces an indefinite period of uncertainty and instability while it tries to continue implementing the company's strategy in the face of the pressure from the would be bidder, target shareholders, and often the media. Throughout this period, which can run for some months, the company's share price trades at prices which reflect the possibility of a deal happening at the price the bidder has put on the table, although usually with a discount for the risk that no deal will eventuate. Yet the would-be bidder has no means of breaking the stalemate, short of walking away or increasing its offer to a value the target board finds acceptable. And the absence of a put up or shut up rule means the target has no means of resolving the situation.

If enough target shareholders support the virtual bid, a potential option is for those shareholders to call an EGM and replace some or all of the target board with directors who will facilitate a transaction. This option is however fraught with difficulty, including finding willing and acceptable candidates for election to the board, the damage that will inevitably be caused to the target's business by the distraction and publicity a hostile EGM process would involve. Given these risks and the fact that the only outcome of such a process is to allow a bidder who at that point has very little skin in the game decide whether they wish to proceed with their highly conditional, indicative and non-binding virtual bid proposal with no certainty of any outcome, the contested EGM option is ultimately unlikely to be a particularly attractive alternative for shareholders.

There have been a number of bear hug proposals made by private equity in late 2011 and early 2012. As yet, none of these proposals has manifested in a binding proposal which shareholders are able to accept. Market integrity is a paramount concern for regulators these days. One suspects the regulators will be closely watching the outcome of these virtual bid proposals and the consequent impact on market integrity. Depending on those outcomes, we just might find that the movement for regulatory change in Australia regains momentum.

You might also be interested in ...


1 Clayton Utz has recently launched THE REAL DEAL: M&A Trends and Developments 2012 edition, a report which contains an unparalleled depth of insight and analysis into public M&A deal structures, tactics adopted by targets and acquirers, and developments shaping the future of the Australian M&A market. The statistics in this article are taken from The Real Deal and Clayton Utz's survey of all Australian public M&A deals announced in 2011 with deal value over $50 million. If you would like to request a copy of THE REAL DEAL 2012, please email Luke Wilson on

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions