Greenmail repurchase
A fascinating topic!
Greenmail is a term used to describe a situation where a corporate raider or activist investor acquires a significant stake in a company, threatening to take control of the company or push for significant changes, unless the company repurchases the shares at a premium price. This is often referred to as a "greenmail" or "greenmailing" the company.
In a greenmail repurchase, the company agrees to buy back the shares from the activist investor at a price higher than the market value, effectively paying a premium to avoid the potential consequences of the activist's actions. This can include changes to the company's management, board of directors, or business strategy.
Greenmail repurchases can be controversial, as they can be seen as a way for companies to avoid accountability and resist change, rather than addressing the underlying issues that led to the activist's involvement in the first place. Some argue that greenmail repurchases can also be a form of corporate welfare, where companies use their resources to reward activist investors rather than using them to benefit shareholders or improve the company's performance.
Examples of greenmail repurchases include:
- The 1980s takeover battle between T. Boone Pickens' Mesa Petroleum and Gulf Oil, which ended with Gulf Oil agreeing to buy back Mesa's shares at a premium.
- The 1990s battle between Carl Icahn and USX Corporation, which ended with USX agreeing to buy back Icahn's shares at a premium.
- The 2010s battle between Bill Ackman's Pershing Square Capital Management and Canadian Pacific Railway, which ended with Canadian Pacific agreeing to buy back Ackman's shares at a premium.
In recent years, there have been efforts to reform the greenmail repurchase process, including the introduction of new regulations and changes to corporate governance practices. Some argue that these reforms can help to reduce the incidence of greenmail repurchases and promote more sustainable and responsible corporate behavior.