What is 'Greenmail'

Greenmail is the practice of buying a voting stake in a company with the threat of a hostile takeover to force the target company to buy back the stake at a premium. In the area of mergers and acquisitions, 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 to thwart the takeover.


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 anti-takeover 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 with no intention of following through on the takeover.

The Gentleman Greenmailer

Sir James Goldsmith was one of the more notorious corporate raiders of the 1980s. He orchestrated two, high profile greenmail campaigns against St. Regis Paper Company and Goodyear Tire and Rubber Company. For his St. Regis venture, he reaped a $51 million profit, and he pocketed a profit of $93 million from his Goodyear raid from two month’s work.

In October 1986, Goldsmith purchased an 11.5% stake in Goodyear at an average share cost of $42 a share. He also filed with the Securities & Exchange Commission (SEC) for his plans to finance a takeover of the company. As part of his plans, he was going to have the company sell off all of its asset except its tire business. Seeing that Goodyear was putting up a defense of the takeover, he offered to sell his stake back to the company for $49.50 a share, which Goodyear eventually did. This forced Goodyear to repurchase 40 million shares from shareholders at $50 a share, costing the company $2.9 billion. Immediately following the repurchase, Goodyear’s share price fell to $42 a share.

Greenmail Outlawed

Although it 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 introduced an excise tax of 50% on any greenmail profits. In addition, companies have introduced various defense mechanisms referred to as poison pills to deter activist investors from making hostile takeover bids.

  1. Raider

    An individual or organization that tries to take over a company ...
  2. Premium Raid

    An attempt by a corporate raider or acquiring company to procure ...
  3. "Just Say No" Defense

    A strategy used by corporations to discourage hostile takeovers ...
  4. Takeover Bid

    A takeover bid is a corporate action in which an acquiring company ...
  5. Takeover

    A corporate action where an acquiring company makes a bid for ...
  6. Poison Put

    A takeover defense strategy in which the target company issues ...
Related Articles
  1. Investing

    Mergers And Acquisitions: Understanding Takeovers

    In the language of mergers and acqusitions, battleground terms meld with bizarre metaphors to create a unique vocabulary.
  2. Investing

    Goodyear Stock Trades Ex-Dividend Thursday

    Goodyear will send its dividend payment on June 1 to shareholders of record as of May 1.
  3. Investing

    Goldman Cuts Rating on Goodyear Tire Stock

    The global tire and rubber leader saw its shares decline as analysts worry over price uncertainty.
  4. Insights

    Carl Icahn Biography

    Carl Icahn is a New-York-based investor and one of the 50 richest men in the world, with more than $20 billion in personal assets. He is known for his brash style as a corporate raider and as ...
  5. 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.
  6. Investing

    3 Automotive Stocks to Look Out for in 2016

    A look at three automotive stocks that have outperformed the market for the last five years.
  7. Investing

    Trademarks of a Takeover Target

    These tips on finding viable takeover targets can lead you to little companies with big prospects.
  8. Small Business

    How To Profit From Mergers And Acquisitions Through Arbitrage

    Making a windfall from a stock that attracts a takeover bid is an alluring proposition. But be warned – benefiting from m&a is easier said than done.
  9. Managing Wealth

    Carl Icahn's Investing Strategy

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

    What Investors Can Learn From M&A Payment Methods

    How a company pays in a merger or acquisition can reveal a lot about the buyer and seller.
  1. Under what circumstances might a company decide to do a hostile takeover?

    Learn about why companies use a hostile takeover to gain control of another company, and understand the different methods ... Read Answer >>
  2. How can a company buy back shares to fend off a hostile takeover?

    Learn about why a business might use a stock buyback to thwart a hostile takeover attempt by reducing its total assets and ... Read Answer >>
  3. What's the difference between a merger and a hostile takeover?

    Understand the difference between a merger and a hostile takeover, including the different ways one company can acquire another, ... Read Answer >>
  4. What happens to the shares of a company that has been the object of a hostile takeover?

    Learn about the effect on the share price of companies that are targets of hostile takeovers, which are tactics used by famed ... Read Answer >>
  5. A Hostile Takeover vs. Friendly Takeover

    Learn about the difference between a hostile takeover and a friendly takeover, and understand how proxy fights and tender ... Read Answer >>
  6. What is the difference between a poison pill defense and a suicide pill defense?

    Learn about different strategies a company uses to prevent hostile takeovers and the main difference between a poison pill ... Read Answer >>
Hot Definitions
  1. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  2. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  3. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  4. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  5. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
  6. Annuity

    An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income ...
Trading Center