Greenmailing definition

Greenmailing is a term used to describe a situation where a corporate raider or an 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.

The term "greenmail" was coined in the 1980s, when corporate raiders like T. Boone Pickens and Carl Icahn would use this tactic to extract large sums of money from companies they targeted. The term "greenmail" comes from the idea that the raider is essentially "greenmailing" the company, or sending a threatening message in the form of a large check.

Here's how it typically works:

1. A corporate raider or activist investor identifies a company they believe is undervalued or has potential for growth.
2. They acquire a significant amount of the company's stock, often through a series of purchases or by using derivatives.
3. The raider then sends a letter or makes a public statement indicating their intention to take control of the company, unless the company agrees to pay them a large sum of money to leave.
4. The company, fearing the potential consequences of a takeover, agrees to pay the raider the demanded sum of money to leave the company alone.

Greenmailing is often criticized because it can be seen as a form of extortion, where the raider is using the threat of a takeover to extract money from the company. It can also be seen as a way for the raider to make a quick profit, rather than taking the time to work with the company to improve its performance.

In recent years, the term "greenmailing" has been used to describe similar tactics used by activist investors, who may use their influence to push for changes in a company's strategy or operations, rather than seeking to take control of the company outright.