While most mergers and acquisitions are conducted on amicable terms, some take a more aggressive approach. One such tactic is the “bear hug,” which the Corporate Finance Institute (CFI) defines as a hostile takeover strategy in which an acquiring company offers to buy the target’s stock at a significantly higher price than its current market value. Alon Y. Kapen shares his insight with Financier Worldwide Magazine on why companies prefer using a bear hug takeover strategy rather than other forms.
From the article:
“From a buyer’s perspective, the advantages of a bear hug strategy is the likelihood of acceptance due to a big premium, the incentive for stockholders to pressure the company, discouragement of competition from rival bidders and a quicker deal process,” points out Mr Kapen. “From the company’s standpoint, the strategy could be good for stockholders in the form of the premium on their shares, which will attract attention from other strategic buyers, as well as better management, if the company was underperforming.”
“Additional issues for the bidder and target company to consider include, for the bidder, a higher cost in the form of the premium, the risk of drawing attention from regulators and the risk of driving the overall price higher,” asserts Mr Kapen. “For the company, there is the risk of losing control to the bidder, risk of a bad deal resulting from stockholder pressure and litigation risk if the board resists.”
Read the full article here: Unsolicited: ‘bear hugs’ in M&A — Financier Worldwide