DEFINITION of Anti-Greenmail Provision
Anti-greenmail provision is a special clause in a firm's corporate charter that prevents the Board of Directors from approving greenmail payments. Greenmail is basically a premium payment to an unwanted party to drive it away from its hostile takeover intentions. An anti-greenmail provision will remove the possibility that a board takes the expedient way out and pays off an unwelcome acquirer of the company's shares, leaving shareholders worse off. Greenmail is conceptually the same as blackmail, but green denotes money.
BREAKING DOWN Anti-Greenmail Provision
Anti-greenmail provision acts as a preventative measure, restraining a board from buying back company stock at a premium from a hostile "investor" (investor in quotes because the person is primarily interested in quick profits rather than holding shares). The provision would require that if a premium payment is made to the greenmailer, the same premium payment must be offered to all shareholders. Alternatively, the provision would require a majority shareholder vote to make a one-off greenmail payment to the hostile party.
Institutional Support of Anti-Greenmail Provisions
Institutional investors normally are in favor of anti-greenmail provisions. An example is American Century Investments, which states in various prospectuses of its ETF securities that: "'Anti-greenmail' proposals generally limit the right of a corporation, without a shareholder vote, to pay a premium or buy out a 5% or greater shareholder. Management often argues that they should not be restricted from negotiating a deal to buy out a significant shareholder at a premium if they believe it is in the best interest of the company. Institutional shareholders generally believe that all shareholders should be able to vote on such a significant use of corporate assets [cash]. The Advisor [American Century Investments] believes that any repurchase by the company at a premium price of a large block of stock should be subject to a shareholder vote. Accordingly, it will generally vote in favor of anti-greenmail provisions."