What is an Anti-Greenmail Provision?
How Does an Anti-Greenmail Provision Work?
To understand an anti-greenmail provision, one must first understand what greenmail is. Assume that Party X, an entity that Company XYZ considers unsavory, is trying to acquire control of Company XYZ by offering to buy shares at a premium from Company XYZ's shareholders. To avoid being purchased by Party X, Company XYZ's board of directors might offer to purchase Party X's shares for a price above the current market price. If Party X agrees, the attempted acquisition is stopped and Party X walks away a lot richer. But the transaction can also be construed as Party X blackmailing (or 'greenmailing') Company XYZ by threatening to take over the company if it does not pay a premium for Party X's stock.
Anti-greenmail provisions generally state that if Company XYZ pays a premium to repurchase shares, it must offer that premium to all shareholders. Company XYZ would do this in exchange for Party X's agreement not to attempt to acquire the company for a certain period of time.
Why Does an Anti-Greenmail Provision Matter?
Anti-greenmail provisions are attempts to thwart takeover threats from speculators, disruptive shareholders, and other 'unsavory' entities that are seeking a payoff rather than a genuine business relationship. In general, a corporation's shareholders must vote to adopt or abandon anti-greenmail provisions.