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:
- 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.
- 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.
- 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.
- 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:
- 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.
- Seek legal advice: Consult with legal counsel to understand the company's rights and options under the relevant laws and regulations.
- Communicate with shareholders: Keep shareholders informed about the situation and the company's plans to address the greenmail attempt.
- 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.
- 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.
- 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.
- 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.
- 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.