Greenmail
From Wikipedia, the free encyclopedia
Greenmail or greenmailing is a corporate acquisition strategy for generating large amounts of money from the attempted hostile takeover of large, often undervalued or inefficient companies. It proved lucrative for investors such as T. Boone Pickens and Sir James Goldsmith during the 1980s.
The term is a neologism derived from blackmail and greenback as commentators and journalists saw the practice of said corporate raiders for what they were - attempts by well-financed individuals to blackmail a company into handing over money by using the threat of a takeover.
Greenmailing is a variant of the corporate raid strategy of Asset stripping whereby an undervalued company is taken over, dismembered, and sold off piecemeal for a profit. The difference being, once having secured a large share of a target company, instead of completing the hostile takeover, the greenmailer offers instead to end the threat to the victim company by selling his share back to it—at a substantial premium to the price paid. Goldsmith, for example, made $90 million from the Goodyear Tire and Rubber Company in the 1980s in this manner. Whilst benefitting the predator, the company and its shareholders are impoverished.
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) [1] have all made greenmail far less common since the early 1990s.
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 a few million dollars goodbye. A company which agrees to buy back the bidder's stockholding in the target avoids being taken over. This buyback often creates a high net profit for the bidder. In return, the bidder agrees to abandon the takeover attempt and may sign a confidential agreement with the greenmailer who will agree not to attempt the manoeuvre for a period of time.
