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Is your company vulnerable to a “bear hug?”

On Behalf of | Aug 17, 2021 | Mergers & Acquisitions

With success comes risk, and if your company is doing well and expanding its facilities, it could draw some potentially unwelcome attention. In fact, you might face the struggle of having to manage what is known in the industry as a “bear hug.”

This maneuver shares many characteristics of a hostile takeover, albeit the terms may be far better. Still, a bear hug can force you to sell your company when that was never your intention.

What happens with a bear hug?

This is an acquisition strategy from a larger company to a (usually) smaller corporation that was not intended to be sold. But the offer tendered is so advantageous to the shareholders of the company to be acquired that there is a legal duty for the company owner to act in the shareholders’ best interests and agree to the merger and acquisition.

Why bear hugs are preferred over hostile takeovers

For the company making the acquisition, a bear hug allows it to appear benevolent by purchasing shares at rates well over their actual market value. That company avoids the stigma of a reputation as a corporate bully, subsuming small companies into their corporate maw.

For the business that’s being acquired, it allows shareholders to pocket a tidy profit from the sale when they walk away. If the bear hug is refused, those shareholders could sue the company owner for failing to act in their best interests.

Navigating the shoals of a bear hug

Don’t attempt to negotiate the terms of the bear hug on your own. You could face very restrictive non-compete clauses that leave you with very little room to move on. Seeking guidance at such a vital juncture for your company is a prudent move.