Greenmail Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Greenmail, written in plain English, along with examples of how it is used.
What is Greenmail?
Forcing a company to buy back a large block of stock at a higher price than purchased by threatening the company with a hostile takeover.
History and Meaning of Greenmail
Greenmail is a financial term that was coined in the 1980s to describe the practice of a corporate raider buying a significant stake in a company, known as a "block of stock," with the intention of forcing the target company to repurchase it at a premium price. In essence, the raider would use the threat of a hostile takeover to demand an inflated price for their shares, essentially blackmailing the target company into buying them back at a premium.
The term was a pejorative wordplay on the words "blackmail" and "greenback" (an old term for US currency), as the greenmailer would profit from the sale of their stock in the target company through the forced buyback.
Greenmail was prevalent during the 1980s when hostile takeovers were more common, and the practice became increasingly controversial. In response, the US Securities and Exchange Commission (SEC) implemented new regulations to control the practice, making it illegal for corporations to deduct greenmail payments from their taxable income.
Examples of Greenmail
- In the 1980s, famous corporate raider Carl Icahn notoriously used the practice of greenmail to force several companies, including Trans World Airlines and Texaco, to repurchase his shares at a premium price.
- In 2010, gaming company Zynga used the threat of a hostile takeover to force mobile gaming company Jambool to repurchase their shares at a higher price, a move that was widely criticized as a greenmail strategy.
- In 2015, activist investor Kevin Murphy used the tactic of greenmail to force natural gas company Williams Companies to approve a $53.2 billion merger with Energy Transfer Equity.
Legal Terms Similar to Greenmail
- Hostile takeover: A takeover bid in which the acquiring company attempts to buy the target company without the consent of the target's board of directors.
- Poison pill: A strategy used by companies to prevent hostile takeovers by making their stock less attractive to potential acquirers.
- Proxy fight: A corporate battle in which opposing parties compete for the support of shareholders to gain control of the company.