What is Greenmail?
Greenmail is an acquirer attempts to obtain a controlling interest in a target by buying at a premium from the target's shareholders.tactic whereby the
How Does Greenmail Work?
Let's assume an entity that Company XYZ considers unsavory (we'll
To avoid being purchased by Party X, Company XYZ's board of directors might to purchase Party X's shares for a price above the current . This of course makes Party X go away (and a richer, by the way), 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 particular premium to Party X.
Why Does Greenmail Matter?
To avoid this situation, in which Company XYZ might make an shares, it must that premium to all shareholders. An anti-greenmail provision is a clause in a 's charter that deters the corporation's board from conducting a buyback.
Company XYZ does this in exchange for Party X's agreement not to attempt to acquire the company for a period of time. 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.