Greenmail example

A classic example of greenmail!

Greenmail is a term used to describe a situation where a corporate raider or activist investor threatens to take over a company, but then backs off and sells their shares at a profit after the company agrees to buy back their shares or make other concessions.

Here's a famous example:

T. Boone Pickens and Gulf Oil

In the 1980s, T. Boone Pickens, a corporate raider and founder of Mesa Petroleum, launched a proxy fight against Gulf Oil, a major oil company. Pickens, who owned about 10% of Gulf's shares, claimed that the company was undervalued and that its management was inefficient. He threatened to take over the company and replace its board of directors.

Gulf's management, led by CEO John Deuss, was concerned about the potential takeover and the disruption it could cause to the company's operations. To avoid a proxy fight and the potential chaos that could ensue, Gulf's board agreed to negotiate with Pickens.

In 1984, Gulf agreed to buy back Pickens' shares at a premium price, effectively ending the proxy fight. Pickens sold his shares and made a significant profit. The deal was seen as a classic example of greenmail, as Pickens had threatened to take over the company but ultimately backed off and profited from the deal.

This episode led to increased scrutiny of greenmail and the use of corporate raiders to extract concessions from companies. It also led to changes in corporate governance and takeover laws, aimed at protecting companies from unwanted takeovers and ensuring that shareholders are treated fairly.