What is a Bear Hug in Business?

November 9, 2022

What is a Bear Hug?

Bear hugs are unsolicited, generous offers to buy publicly listed companies. In the mergers and acquisitions world, this acquisition strategy is designed to appeal to the target company’s shareholders and pressure the company’s board of directors. 

This strategy requires bidders to offer at a significant premium to the company’s stock value

How do Bear Hugs Work?

The bear hug strategy is designed to pressure the board of the target company by submitting an acquisition bid high above the market value of the target company’s stock. It’s meant to make it impossible to say no to the offer. 

Company boards have a fiduciary duty to act in the best interests of the shareholders. This means that refusing the bear hug acquisition could potentially lead to lawsuits or other forms of shareholder activism. 

Although a bear hug is a form of a hostile takeover attempt, it is not unfriendly. If accepted, the acquisition should leave the target company’s shareholders in a better financial position. 

Bear hug offers typically happen either when a company’s stock has fallen or because the acquiring company sees potential growth in the target company.

Examples of Bear Hugs

One of the most recent and well-known examples is Elon Musk’s unofficial offer to buy Twitter (TWTR) in April 2022. He offered to acquire the company at an 18% premium to its market value, which was at a 22% discount to Twitter’s share price from a year earlier. 

Earlier examples include the attempts by Xerox (XRX) to acquire HP (HPQ) in 2019, Exelon (EXC) to acquire NRG Energy (NRG) in 2009, and Microsoft (MSFT) to acquire Yahoo in 2008. None of those efforts were successful.

Reasons for a Bear Hug Takeover

Since bear hugs are unsolicited and require an acquisition premium to be paid, why would businesses or people pursue them? What makes the higher price of the acquisition worth it?

Limit Competition

If you see an amazing home during a large open house and you don’t want to risk anyone else getting the property, most people would submit an offer above asking price. The bear hug takeover strategy works essentially the same way. 

Potential buyers want to secure their acquisition, so they’ll limit competition by offering above the fair market value, hopefully discouraging other bidders from even trying. 

Avoid Confrontation with the Target Company

Generally speaking, hostile takeovers occur when the target company’s management doesn’t want to sell. When this happens, bidders can approach stockholders directly to ensure there are positive relations between the acquiring company and the target company. 

Bear hugs, on the other hand, aren’t looking to ruffle any feathers for the target company. By tendering a generous offer, the management is likely to be more receptive to acquisition than if the bidder went straight to the shareholders. 

The goal of a bear hug takeover bid is to maintain positive relationships with the target company’s management. If successful, the strategy can help smooth out any legal disputes or other logistical obstacles that often occur in takeovers. 

What if a Bear Hug is Rejected?

While enticing, bear hugs are often rejected by the board of directors. There are a variety of reasons they may not want to sell the company: management could believe it wouldn’t be in the best interest of shareholders, or they could simply not like the deal. 

However, unless they can give financial justification for rejecting the offer, two problems could arise.

1. The Acquirer Makes a Tender Offer Directly to Shareholders

If management rejects the bid, the acquirer is welcome to go directly to shareholders with a tender offer — a bid to buy some or all the company’s stocks directly from shareholders. 

Shareholders are likely to agree because the bidder is offering to purchase shares above market price, providing a substantial return on investment. 

2. Shareholders File A Lawsuit Against Management

When the management can’t justify their decision to reject a bear hug offer, the shareholders are permitted to file a lawsuit against them. Again, the board of directors has a fiduciary responsibility to serve the best interests of stockholders. 

In the example of the Microsoft and Yahoo bear hug, Yahoo’s board of directors faced a flood of shareholder lawsuits for rejecting the $47.5 billion bid offer from Microsoft — a price 62% higher than the closing price of Yahoo stock at the time. 

Pros and Cons of a Bear Hug

There are three main players when it comes to acquisitions: the bidder, the target company, and the shareholders. Each party is impacted differently. 


This strategy can benefit bidders by limiting competition. This makes the entire acquisition strategy simpler and gives bidders a better chance of the deal. 

The main negative for the bidder is how expensive the whole endeavor can be. To limit competition and attempt to strike a quick deal, the bidder can end up spending more than it would have if it had pursued a more traditional acquisition strategy. 

If successful and the company’s asset value doesn’t improve, the new owner also may be left with a struggling company. This is especially true if the bear hug isn’t friendly and the company has to go through management changes after the purchase. 

Target Company 

Management of the target company can benefit from the high offer price and a high valuation of the company from a purely financial standpoint. 

If the board decides to reject the offer, shareholders can pursue legal action against the company. This is both troublesome and expensive and likely to result in continued strife for the economic state of the company. 

If the acquisition is successful, management could face ousting by the new owners. 


Shareholders of a company receive the most significant benefit from the above-market offer in the form of higher returns.

Even if it doesn’t lead quickly to a deal, a bear hug puts pressure on a company’s board and management to get the share price above that the bear hug offers.

Bear hugs can distract the board of the company, potentially to the detriment of the acquired company and even the bidder. If management doesn’t want to accept the offer, they will have to provide reasoning for their current low valuation to shareholders. In this way, bear hugs draw attention to current management and the company’s stock price. 

The Bottom Line

A bear hug in business refers to one company making an acquisition offer for another far above the valuation of the company’s shares. This is a strategic move designed to back the target company’s management into a corner, forcing an acquisition or risking lawsuits and unhappy shareholders.

While these are generous offers, they don’t always lead to successful acquisitions. Rejections of the bear hug offer can ultimately result in lawsuits from investors, as seen in Microsoft’s failed bid for Yahoo in 2008.

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