Greenmail or
greenmailing is the practice of purchasing enough shares in a firm to threaten a
takeoverIn business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...
and thereby forcing the target firm to buy those shares back at a premium in order to suspend the takeover.
The term is a
neologismA neologism ; from Greek νές is a newly coined word that may be in the process of entering common use, but has not yet been accepted into mainstream language. Neologisms are often directly attributable to a specific person, publication, period, or event...
derived from
blackmailBlackmail is the crime of threatening to reveal substantially true information about a person to the public, a family member, or associates unless a demand made upon the victim is met. This information is usually of an embarrassing and/or socially damaging nature...
and
greenbackGreenback may refer to:* A term used for the United States dollar* A term first used for the United States Demand Notes issued from August 1861 to April 1862* A modern United States Federal Reserve Note* A United States Note...
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 raidA corporate raid is a business term for buying a large interest in a corporation and then using voting rights to enact measures directed at increasing the share value...
s aim to generate large amounts of money by
hostile takeoverIn business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...
s of large, often undervalued or inefficient companies, by either
asset stripping-Business:Asset stripping involves selling the assets of a business individually at a profit. The term is generally used in a pejorative sense as such activity is not considered productive to the economy. Asset stripping is considered to be a problem in economies such as Russia or China that are...
and/or replacing management and employees.
Greenmail or
greenmailing is the practice of purchasing enough shares in a firm to threaten a
takeoverIn business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...
and thereby forcing the target firm to buy those shares back at a premium in order to suspend the takeover.
The term is a
neologismA neologism ; from Greek νές is a newly coined word that may be in the process of entering common use, but has not yet been accepted into mainstream language. Neologisms are often directly attributable to a specific person, publication, period, or event...
derived from
blackmailBlackmail is the crime of threatening to reveal substantially true information about a person to the public, a family member, or associates unless a demand made upon the victim is met. This information is usually of an embarrassing and/or socially damaging nature...
and
greenbackGreenback may refer to:* A term used for the United States dollar* A term first used for the United States Demand Notes issued from August 1861 to April 1862* A modern United States Federal Reserve Note* A United States Note...
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.
Tactic
Corporate raidA corporate raid is a business term for buying a large interest in a corporation and then using voting rights to enact measures directed at increasing the share value...
s aim to generate large amounts of money by
hostile takeoverIn business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...
s of large, often undervalued or inefficient companies, by either
asset stripping-Business:Asset stripping involves selling the assets of a business individually at a profit. The term is generally used in a pejorative sense as such activity is not considered productive to the economy. Asset stripping is considered to be a problem in economies such as Russia or China that are...
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
ransomRansom is the practice of holding a prisoner or item to extort money or property to secure their release, or it can refer to the sum of money involved.In early Germanic law a similar concept was called Weregild....
payment may be referred to as a
goodbye kiss. The origin of the term as a business
metaphorA metaphor is a figure of speech concisely comparing two things, saying that one is the other. The English metaphor derives from the 16th c...
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.
Examples
Greenmail proved lucrative for investors such as T. Boone Pickens and
Sir James GoldsmithSir James Michael "Jimmy" Goldsmith was an Anglo-French billionaire financier. Towards the end of his life, he became a magazine publisher and a politician. In 1994, he was elected to represent France as a Member of the European Parliament and he subsequently founded the short-lived eurosceptic...
during the 1980s. In the latter example, Goldsmith made $90 million from the
Goodyear Tire and Rubber CompanyThe Goodyear Tire & Rubber Company was founded in 1898 by Frank Seiberling. Today it is the third largest tire company in the world after Bridgestone and Michelin...
in the 1980s in this manner.
Occidental PetroleumOccidental Petroleum Corporation is an international oil and gas exploration and production company with operations in the United States, the Middle East, North Africa, and South America. The company nickname “Oxy” began in 1964 in reference to Occidental’s NYSE stock ticker. Headquartered in Los...
paid greenmail to David Murdoch in 1984.
Prevention
Changes in the details of corporate ownership structure, in the investment markets generally, and the legal requirement in some jurisdictions for companies to impose limits for launching formal bids, or obligations to seek shareholder approval for the buyback of its own shares,
and in Federal tax treatment of greenmail gains (a 50% excise tax) have all made greenmail far less common since the early 1990s.
See also
- Economics
Economics is the social science that studies the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
- Industrial organization
Industrial organization is a field of economics that studies the strategic behavior of firms, the structure of markets and their interactions. The study of industrial organization adds to the perfectly competitive model real-world frictions such as limited information, transaction cost, cost of...
- Mergers and acquisitions
The phrase mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another...
- Microeconomics
Microeconomics is a branch of economics that studies how households and firms make decisions to allocate limited resources, typically in markets where goods or services are being bought and sold...