A Bear Hug is a financial term used in the context of mergers and acquisitions (M&A). It refers to an aggressive takeover strategy where one company makes a highly favorable offer to acquire another company, often at a substantial premium over the current market value of the target company’s stock.

In a bear hug, the acquiring company (the “bear”) offers a price that is so attractive that the board of directors of the target company is under significant pressure to accept the offer and present it to their shareholders. The idea is that the offer is too good to refuse, making it difficult for the target company’s management to reject it without facing criticism from shareholders for not acting in their best financial interests.

Key characteristics of a bear hug:

1. High Premium: The offer is typically made at a price significantly higher than the current market price of the target company’s shares. This premium is intended to make the offer very attractive and difficult to reject.
2. Public or Private: A bear hug can be either public or private. In a public bear hug, the acquiring company makes its offer publicly, often through a press release or direct communication to shareholders. In a private bear hug, the offer is made directly to the board of directors of the target company.
3. Pressure on the Board: The target company’s board of directors may feel compelled to accept the offer or at least present it to shareholders due to the high premium and the potential backlash from shareholders if the offer is rejected.
4. Friendly vs. Hostile: While a bear hug can be seen as a “friendly” takeover strategy, it is often viewed as a form of a hostile takeover, especially if the target company’s management is opposed to the acquisition. However, the generous nature of the offer can sometimes lead to a friendly negotiation and eventual acceptance.

A bear hug is a strategic move by the acquiring company to take control of a target company with minimal resistance by making an offer that is difficult to refuse.