Greenmail's use, as a strategy, is one of many corporate finance tactics. It is the kind of thing which brings the City into disrepute . Smith said,Įuphemistically this practice – which I understand is a not unheard-of practice in the City – is described as "greenmail". Smith condemned Ashcroft's tactics in relation to the takeover of cleaning company RCO by the Danish firm ISS. In 2003, Michael Ashcroft was criticised by the High Court judge, Mr Justice Peter Smith in Rock (Nominees) Ltd v RCO (Holdings) Plc.
At one point, fellow corporate raider Sir Larry Wildman refers to Gordon Gekko as "a two-bit pirate and a greenmailer." Cases In a fictional context, greenmail tactics are prominently used in the 1987 film Wall Street. Regis to the Champion offer for a profit. St Regis turned to Champion International and agreed to a $1.84 billion takeover. Regis became the target of publisher Rupert Murdoch.
Shortly after the payoff in March 1984, St. It sold its stake at $52 per share, netting a profit of $51 million. Goldsmith's group acquired the shares for an average price of $35.50 per share, a total of $109 million. Regis and expressed interest in taking over the paper concern, the company agreed to repurchase the shares at a premium. When an investor group led by Sir James Goldsmith acquired 8.6% stake in St. Regis Paper Company provides an example of greenmail. In 1984, Occidental Petroleum paid $194 million greenmail to David Murdock. In the latter example, Goldsmith made $90 million from the Goodyear Tire and Rubber Company in the 1980s in this manner. Boone Pickens and Sir James Goldsmith during the 1980s. Greenmail proved lucrative for investors such as T. Greenmail also momentarily protects the company's existing management and employees from termination, demotion, or reduction in wages, which would have most certainly seen their ranks reduced or eliminated had the hostile takeover successfully gone through.
While benefiting the corporate raider, the company and the company's shareholders lose money. In return, the bidder agrees to momentarily abandon the takeover attempt and may sign a confidential agreement with the greenmailee, guaranteeing not to resume the maneuver for a period of time. A company which agrees to buy back the bidder's stockholding in the target avoids being taken over. In reference to a President, Chairman, or CEO in charge of a target company being taken over, there are many situations in which a golden parachute is provided. The origin of the term goodbye kiss as a business metaphor is unclear. įrom the viewpoint of the target, the ransom payment may be referred to as a goodbye kiss. 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. Ackman attempted to have these assets spun off as an IPO, along with a partial sale of Target's credit card unit and the execution of share buybacks, which reduce the number of shares outstanding by using corporate equity and earnings to repurchase existing shareholders' positions. One example of this practice was the attempted takeover by William Ackman's Pershing Square Capital Management of American retailer Target, which had a large inventory of mature or nearly mature real estate properties in its corporate portfolio. In other circumstances, the greenmailer seeks out assets the target company has built up as equity, such as real estate, and attempts to have the target company dispose of those assets and lease them back via a recurring lease payment, while returning the sold-off real estate to shareholders as a special dividend. non-profit-maximizing) companies, by either asset stripping and/or replacing management and employees. Tactic Ĭorporate raids occasionally aim to generate large amounts of money by hostile takeovers of large, often undervalued or inefficient (i.e. In the area of mergers and acquisitions, the greenmail payment is made in an attempt to stop the hostile takeover. The greenmail strategy has evolved since its first practices with ways to counter greenmail, other variations of greenmail, as well as ways to reinforce a greenmail tactic.
The term is a financial neologism, coined in the 1980s, from blackmail and greenback as commentators and journalists saw the practice of corporate raiders as attempts by well-financed individuals, or their operating companies, to blackmail a company into handing over money by using the threat of a takeover. Greenmail or greenmailing is the action of purchasing enough shares in a firm to challenge a firm's leadership with the threat of a hostile takeover to force the target company to buy the purchased shares back at a premium in order to prevent the potential takeover.
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