Greenmail refers to the idea
Greenmail refers to the practice of a corporate raider or activist investor threatening to take over a company and break it up or sell its assets, unless the company's management agrees to buy back the raider's shares at a premium price. This is often done to make a quick profit, rather than to improve the company's operations or create long-term value.
The term "greenmail" was coined because the raider's shares are often described as "green" or "toxic" because they are seen as a threat to the company's stability and success. The practice is considered a form of corporate raiding, and is often criticized because it can disrupt the normal functioning of the company and create uncertainty for employees, customers, and other stakeholders.
Greenmail can take many forms, including:
- Hostile takeover: A raider acquires a significant stake in a company and then demands that the company's management agree to a merger or acquisition at a price that is higher than the current market value of the company.
- Proxy fight: A raider gathers support from other shareholders to elect a new board of directors that is more sympathetic to the raider's goals.
- Share buyback: A raider demands that the company's management agree to buy back the raider's shares at a premium price, often as part of a deal to avoid a hostile takeover.
Greenmail is often seen as a form of corporate governance abuse, and is illegal in some jurisdictions. However, it remains a common practice in the world of corporate finance, and is often used by activist investors to pressure companies to change their strategies or improve their performance.