What is 'Greenmail'

Greenmail is the practice of buying enough shares in a company to threaten a hostile takeover so that the target will repurchase its shares at a premium. Regarding mergers and acquisitions, the greenmail payment is made to stop the takeover bid. The target company is forced to repurchase the stock at a substantial premium to thwart the takeover.


Like blackmail, greenmail is money paid to an entity to stop or prevent aggressive behavior.  In mergers and acquisitions, it is an anti-takeover measure in which the target company pays a premium, known as greenmail, to purchase its own stock shares back at inflated prices from a corporate raider. After accepting the greenmail payment, the raider generally agrees to discontinue the takeover and not purchase any more shares for a specific time. 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, seeking only to profit, initiated takeover bids with no intention of following through on the takeover.

The Gentleman Greenmailer

Sir James Goldsmith was a notorious corporate raider of the 1980s. He orchestrated two high-profile greenmail campaigns against St. Regis Paper Company and Goodyear Tire and Rubber Company. Goldsmith earned $51 million from his St. Regis venture and $93 million from his Goodyear raid, which took only 2 months.

In October 1986, Goldsmith purchased an 11.5% stake in Goodyear at an average cost of $42 a share. He also filed plans to finance a takeover of the company with the Securities & Exchange Commission (SEC). Part of his plan was to have the company sell off all of its assets except its tire business, which was not received well by Goodyear executives. In response to Goodyear's resistance, he proposed to sell his stake back to the company for $49.50 a share; this strong-arm proposal is often referred to as the ransom or the goodbye kiss.  Eventually, Goodyear accepted and subsequently repurchased 40 million shares from shareholders at $50 per share, which cost the company $2.9 billion. Immediately following the repurchase, Goodyear’s share price fell to $42.  

Greenmail Outlawed

Although greenmailing still occurs in various forms, federal and state regulations have made it much more difficult for companies to repurchase shares from short-term investors above market price. In 1987, the Internal Revenue Service (IRS) introduced an excise tax of 50% on greenmail profits. In addition, companies have introduced various defense mechanisms, referred to as poison pills, to deter activist investors from making hostile takeover bids.

Despite the efforts to deter and prevent greenmailing, it is still being practiced. Greenmail does not always present the threat of a hostile takeover; sometimes, it presents the threat of a proxy contest that can substantially affect management and operations. For example, from 2011 to 2013, Icahn Associates, run by activist investor Carl Icahn, held a majority stake in WebMD. To restrict his ability to alter their leadership structure, WebMD repurchased its shares for approximately $177.3 million in 2013.

  1. Anti-Greenmail Provision

    Anti-greenmail provision is a special clause in a firm's corporate ...
  2. Killer Bees

    Killer bees helped companies avoid takeovers, during the 198 ...
  3. Takeover

    A takeover occurs when an acquiring company makes a bid in an ...
  4. Hostile Takeover Bid

    A hostile takeover bid occurs when an entity attempts to take ...
  5. Black Knight

    A black knight is a company that makes an unwelcome takeover ...
  6. "Just Say No" Defense

    A "just say no" defense is a strategy used by boards of directors ...
Related Articles
  1. Investing

    Goodyear Stock Trades Ex-Dividend Thursday

    Goodyear will send its dividend payment on June 1 to shareholders of record as of May 1.
  2. Managing Wealth

    Carl Icahn's Investing Strategy

    Buying up failing investments and turning them around helped to create the "Icahn lift" phenomenon.
  3. Investing

    Goodyear Tire to Soar Over 60% on Autonomous Driving: Morgan Stanley

    Analysts forecast more miles from driverless cars as meaning more sales for the US tire maker.
  4. Investing

    3 Companies With High Working Capital (GT, GILD)

    Learn about working capital, its importance in determining corporate financial stability and three stocks with high working capital to consider in 2016.
  5. Investing

    Trademarks of a Takeover Target

    These tips on finding viable takeover targets can lead you to little companies with big prospects.
  6. Investing

    Poison Pill

    A poison pill is a corporate maneuver put in place to try and prevent a hostile takeover. The target corporation uses this strategy to make its stock less attractive to the acquirer. This is ...
  7. Managing Wealth

    5 Feared Figures in Finance

    Gates, Soros, Icahn, Rockefeller and Morgan didn't make their names on Wall Street because of their kind-heartedness.
  8. Investing

    Hot Dividend-Growth Stocks for 2017 (PFE, GT)

    Interest rate increases can scare stock investors, but these dividend-growth stocks may give you reason to continue to invest.
  9. Tech

    WebMD Health Poised to Execute Tender Offer (WBMD)

    Through Dec. 15, WebMD plans to spend a portion of its $1.065 billion of on-hand cash and investments on a tender offer of up to 2 million shares.
  1. How can a company resist a hostile takeover?

    Learn about some of the defensive strategies a public company's board of directors might utilize to prevent a hostile bidder ... Read Answer >>
  2. How company stocks move during an acquisition

    During an acquisition, there's a short-term impact on the stock prices of both companies. Typically, the target company's ... Read Answer >>
  3. What is the difference between a merger and a takeover?

    In a general sense, mergers and takeovers (or acquisitions) are very similar corporate actions - they combine two previously ... Read Answer >>
  4. What are some of the top hostile takeovers of all-time?

    Learn about some of the most noteworthy hostile takeovers in history, including the KKR acquisition of RJR Nabisco and the ... Read Answer >>
  5. How do share redemptions and repurchases differ?

    Share repurchases happen when a company purchases shares back from its shareholders. Redemption is when a company requires ... Read Answer >>
Trading Center