Bear Hug Definition
A bear hug refers to an unsolicited offer made by one company to buy the shares of another company at a much higher per-share price than what those shares are actually worth. The goal of a bear hug is usually to take control of the target company. In the context of cryptocurrencies, it can also refer to a situation where the market experiences a prolonged period of falling prices, which encourages selling.
Bear Hug Key Points
- An aggressive acquisition strategy used by companies to take over others.
- The offer is generally much higher than the actual value of the company’s shares.
- In cryptocurrency, it indicates a long-term falling trend in the market.
- It encourages selling due to a pessimistic perspective on the market trends.
What is a Bear Hug?
In business, a bear hug is usually an initial step in the hostile takeover process. It typically involves making an unsolicited bid to purchase another company for a price per share much higher than the current market value. The term implies the aggressiveness of the bid – it’s like a bear overpowering its opponent with a strong, enveloping grasp.
Why does a Bear Hug occur?
The purpose of a bear hug is typically two-fold. Firstly, the acquiring company hopes to persuade shareholders in the target company to sell their shares. Secondly, the aggressive tactic is designed to prevent competing offers from emerging.
Where is a Bear Hug applied?
Bear hug tactics are common in both traditional corporate environments and in the world of blockchain and cryptocurrency. In both contexts, the term refers to ‘bear’ market conditions, where the prices of securities or cryptocurrencies are falling, and selling is encouraged.
When can a Bear Hug happen?
A bear hug can occur anytime within the business cycle. Often, bear hugs are more frequent during periods of economic instability or uncertainty, when companies may be more vulnerable to aggressive takeover bids.
How does a Bear Hug work?
In a bear hug, the bidder approaches the target company’s board of directors with an offer to buy shares at a premium price. The board of directors then has a fiduciary duty to consider the offer, even if it is unanticipated or unwanted. The goal is to compel the target company to negotiate, or risk looking like they’re neglecting their duty to their shareholders.
