Greenmailing

Greenmailing is a term used to describe a situation where a corporate raider or activist investor threatens to take control of a company by acquiring a significant amount of its stock, unless the company agrees to pay them a large sum of money to leave the company alone. This is often done by threatening to take the company private or to break it up and sell its assets.

The term "greenmail" was coined in the 1980s, when corporate raiders like T. Boone Pickens and Carl Icahn became notorious for using this tactic to extract large sums of money from companies. The term is thought to have originated from the idea that the raider is "greenmailing" the company, or extracting money from it like a greenmail, or a ransom.

Greenmailing is often seen as a form of extortion, as the raider is using the threat of taking control of the company to extract a large sum of money from it. It is often criticized as a way for raiders to make a quick profit at the expense of the company and its shareholders.

Some of the key characteristics of greenmailing include:

  1. The raider acquires a significant amount of the company's stock, often through a tender offer or a proxy fight.
  2. The raider threatens to take control of the company, often by nominating a slate of directors or by seeking to take the company private.
  3. The raider demands a large sum of money from the company in exchange for leaving the company alone.
  4. The company is often forced to pay the raider a premium to avoid the risk of a takeover.

Examples of greenmailing include:

Greenmailing is often seen as a controversial practice, as it can be seen as a form of extortion and can harm the company and its shareholders. However, some argue that it can also be a way for activist investors to push companies to make changes that benefit shareholders, such as increasing profitability or improving governance.