Greenmail, also known as corporate raider shakedowns, is the practice of targeting companies and threatening to take them over unless the company pays a large fee to the investor. In most cases, the company is forced to pay the large fee in order to avoid a hostile takeover.
Greenmail has become a popular way for corporate raiders to make a quick profit, with investors frequently taking advantage of the fear a company has that they could be taken over. By threatening a takeover, these investors force the company’s board of directors to choose between paying the fee or having a hostile takeover.
Examples of Greenmail
An example of greenmail occurred in the 1980s when investor Carl Icahn purchased a large number of shares in Phillips Petroleum and threatened to take the company over unless they agreed to repurchase his shares at a large premium. Ultimately, Phillips Petroleum chose to pay the fee and the takeover was averted.
Another example occurred in 2017 when Swiss pharmaceutical company, Actelion, was the target of greenmail. In this case, the company was targeted by activist investor Elliott Management and was forced to pay the investors a $1.7 billion to prevent the hostile takeover.
Conclusion
Greenmail is a practice that has been seen throughout recent business history and although it often results in the company having to pay a large fee, it can also be beneficial in preventing a hostile takeover. For companies that may be targeted by greenmail, talking to a lawyer to understand their options is a good place to start.