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Is your business vulnerable to a “bear hug?”

On Behalf of | Jun 6, 2024 | Business Litigation

Things are good with your company despite a somewhat shaky economy. You have a strong brand and have long passed the start-up phase of your business. All in all, things are looking good.

But could they be too good? Often, it’s at this point where smaller businesses start to see the sharks circling. You may have even fended off some attempts from larger corporate entities to buy your company.

In short, you could be targeted by a bear hug

A bear hug is one type of acquisition strategy used by typically larger corporations to force the unwilling board of directors of publicly listed companies to sell. They do this by offering a significantly higher tender offer than the company stock is actually worth. It puts the board on the defensive, not the least because the hopeful buyer skips past the board and goes straight to the shareholders with the lucrative offer.

What happens next?

That depends. You can fight back against unsolicited takeovers, but the board has to keep the best interests of the company foremost to fulfill its fiduciary duty. Failing to do so can land you in litigation, proxy contests or being challenged by a shareholder vote — but that doesn’t mean that you have to automatically roll over without a fight.

Learn more about business litigation strategies

If you decide to fight the bear hug, there are different strategies you can employ. You may be able to convince the shareholders that the offer does not actually represent their best interests because of a cyclic decline in the market. Or you may need to solicit a white knight corporation that ultimately offers more bang for the shareholder buck.

One thing is certain, however. Bear hugs are serious business (just ask folks at the company formerly known as “Twitter”). Approaching it from a legally sound perspective is mandatory for the company being sought in the acquisition.