Greenmail rules 2021
Greenmail is a term used to describe a situation where a shareholder of a company, typically a hedge fund or activist investor, acquires a significant stake in the company and then demands a premium price to sell their shares back to the company. This can be seen as a form of extortion, as the shareholder is essentially holding the company hostage and demanding a ransom in exchange for not taking further action.
In 2021, there have been several instances of greenmail, including:
- The acquisition of a 9.9% stake in the UK-based company, Asos, by the hedge fund, Cevian Capital. Cevian Capital demanded a seat on the board and a significant increase in the company's dividend payout.
- The acquisition of a 5.5% stake in the US-based company, Wendy's, by the hedge fund, Jana Partners. Jana Partners demanded that the company spin off its Asian operations and increase its dividend payout.
- The acquisition of a 10% stake in the UK-based company, Marks & Spencer, by the hedge fund, Elliott Management. Elliott Management demanded that the company cut costs and increase its dividend payout.
In response to these instances of greenmail, regulators and lawmakers have taken steps to address the issue. For example:
- The UK's Financial Conduct Authority (FCA) has introduced new rules to prevent greenmail, including requiring hedge funds to disclose their intentions and motivations when acquiring a stake in a company.
- The US Securities and Exchange Commission (SEC) has also taken steps to address greenmail, including increasing its scrutiny of activist investors and their activities.
- Some lawmakers have introduced legislation to address greenmail, including the "Corporate Governance Reform and Transparency Act" in the US, which aims to increase transparency and accountability in corporate governance.
Overall, greenmail remains a significant issue in the world of finance, and regulators and lawmakers are working to address it.