Entry in progress—B.P.
Greenmail or greenmailing is the practice of purchasing enough shares in a firm to threaten a takeover and thereby forcing the target firm to buy those shares back at a premium in order to suspend the takeover.
The term is a neologism derived from blackmail and greenback as commentators and journalists saw the practice of said corporate raiders as attempts by well-financed individuals to blackmail a company into handing over money by using the threat of a takeover
Corporate raids aim to generate large amounts of money by hostile takeovers of large, often undervalued or inefficient (i.e. non-profit-maximizing) companies, by either asset stripping and/or replacing management and employees. However, once having secured a large share of a target company, instead of completing the hostile takeover, the greenmailer offers to end the threat to the victim company by selling his share back to it, but at a substantial premium to the fair market stock price.
From the viewpoint of the target, the ransom payment may be referred to as a goodbye kiss. The origin of the term as a business metaphor is unclear, although it will certainly be understood in context as kissing the greenmailer and, certainly, millions of dollars goodbye. A company which agrees to buy back the bidder’s stockholding in the target avoids being taken over. In return, the bidder agrees to abandon the takeover attempt and may sign a confidential agreement with the greenmailer who will agree not to resume the maneuver for a period of time.
While benefiting the predator, the company and its shareholders lose money. Greenmail also perpetuates the company’s existing management and employees, which would have most certainly seen their ranks reduced or eliminated had the hostile takeover successfully gone through.
What Does Greenmail Mean?
A situation in which a large block of stock is held by an unfriendly company. This forces the target company to repurchase the stock at a substantial premium to prevent a takeover.
It is also known as a “bon voyage bonus” or a “goodbye kiss”.
(Oxford English Dictionary)
Etymology: < green adj.+ -mail(in blackmail n.); compare green n. 7d.(Show Less)
Stock Market (orig. U.S.).
The practice of purchasing enough shares in a firm or trading company to threaten a take-over, thereby forcing the owners to buy them back at a premium in order to retain control of the business. Freq. attrib.
1983 National Law Jrnl. (U.S.) 21 Mar. 23/4 Corporations are scurrying to combat a perceived threat from those professional investors who practice ‘greenmail’—putting pressure on a company to get a buy-out for cash.
1984 Daily Tel. 16 June 17 The Disney settlement is the latest and biggest in a recent spate of ‘greenmail’ deals.
1984 Times 15 Oct. 17/6 Two leading companies in the United States are introducing schemes to help ward off the threat of unwelcome takeover bids or attempts of ‘greenmail’.
1986 N.Y. Times 13 Nov. d1/1 CPC may have revived ‘greenmail’ by moving to get Ronald O. Perelman off its back, some Wall Street players contend.
14 March 1984, New York (NY) Times, “Opposite Tacks Taken on Mergers” by Peter T. Kilborn, pg. D12:
It recommended that the target company obtain stockholder approval before submitting to “greenmail”—repurchasing the bidder company’s holding of the target’s stock and thus averting a takeover.
15 April 1984, New York (NY) Times, “The Minority Takeover Threat: ‘Greenmail’ Is a Corporate Disgrace” by Martin Lipton, pg. F2:
But “greenmail”—legal corporate blackmail by raiders who accumulate 10 to 25 percent of a company’s stock and then threated a takeover or proxy fight if not bought out at a premium—is a disgrace and should be eliminated.
1 May 1984, New York (NY) Times, “S.E.C. Position On Takeovers” by Kenneth B. Noble, pg. D2:
The commission will also study a recommendation that target companies obtain stockholder approval before submitting to “greenmail”—repurchasing the bidder’s holding of the target’s stock to avert a takeover.
19 August 1984, New York (NY) Times, “The Age of “Me-First’ Managmenet” by Ann Crittenden, pg. F1:
Two things that seem to bother people the most, and that have come to symbolize the current sense of excess, are “golden parachutes” and “greenmail”—both childrne of the recent takeover phenomenon.
New York City • Banking/Finance/Insurance • (0) Comments • Sunday, February 13, 2011 • Permalink