How to prevent or deal with greenmail

Greenmail is a type of hostile takeover attempt where a company's management or a third party acquires a significant amount of the company's stock, often with the intention of forcing the company to buy back the shares at a higher price than the acquirer paid for them. Here are some ways to prevent or deal with greenmail:

Prevention:

  1. Shareholder rights plan: Implement a shareholder rights plan, also known as a "poison pill," which allows existing shareholders to purchase additional shares at a discounted price if a hostile acquirer attempts to take control of the company.
  2. Strong corporate governance: Ensure that the company has a strong and independent board of directors, as well as a robust corporate governance structure, to prevent a hostile takeover.
  3. Diversified ownership: Encourage a diverse ownership structure by having a wide range of shareholders, making it more difficult for a single individual or group to gain control.
  4. Share buyback program: Implement a share buyback program to reduce the number of outstanding shares and make it more difficult for an acquirer to gain control.

Dealing with greenmail:

  1. Negotiate with the acquirer: If a greenmail attempt is made, try to negotiate with the acquirer to reach a mutually beneficial agreement, such as a merger or acquisition at a fair price.
  2. Seek legal advice: Consult with legal counsel to understand the company's rights and options under the relevant laws and regulations.
  3. Communicate with shareholders: Keep shareholders informed about the situation and the company's plans to address the greenmail attempt.
  4. Consider a white knight: If the company is unable to negotiate with the acquirer, consider seeking a "white knight" investor or acquirer that can help the company defend against the hostile takeover.
  5. Use defensive tactics: Implement defensive tactics, such as a poison pill or a staggered board, to make it more difficult for the acquirer to gain control.
  6. Consider a proxy fight: If the company is unable to negotiate with the acquirer, consider launching a proxy fight to convince shareholders to vote against the hostile takeover.
  7. Seek support from institutional investors: Reach out to institutional investors, such as pension funds or mutual funds, to seek their support in defending against the hostile takeover.
  8. Consider a recapitalization: If the company is unable to defend against the hostile takeover, consider a recapitalization, which involves restructuring the company's debt and equity to make it more attractive to a new investor or acquirer.

It's essential to have a comprehensive plan in place to prevent or deal with greenmail, including a strong corporate governance structure, a diverse ownership base, and a robust defense strategy.