Definition of 'Greenmail'
An antitakeover measure that arises when a large block of stock is held by an unfriendly company that is threatening a hostile takeover. Greenmail is a term that applies to mergers and acquisitions, and refers to the money that is paid by the target company to another company, known as a corporate raider, that has purchased a majority of the target company's stock. The greenmail payment is made in an attempt to stop the takeover bid. The target company is forced to repurchase the stock at a substantial premium (the greenmail payment) to prevent the takeover. This is also known as a "bon voyage bonus" or a "goodbye kiss."
Investopedia explains 'Greenmail'
Like blackmail, greenmail is money that is paid to an entity to make it stop an aggressive behavior. In mergers and acquisitions, it is an antitakeover measure where the target company pays a premium, known as greenmail, to purchase its own stock shares back (at inflated prices) from a corporate raider.
Once the raider accepts the greenmail payment, generally it agrees to stop pursuing the takeover and not to purchase any more shares for a specified number of years. The term "greenmail" stems from a combination of blackmail and greenbacks (dollars). The great number of corporate mergers that occurred during the 1980s led to a wave of greenmailing. During that time, it was suspected that some corporate raiders initiated takeover bids to make money through greenmail, which no intention of following through on the takeover.