DEFINITION of Whitemail

Whitemail is a strategy that a takeover target can use to try to thwart a hostile takeover attempt. Whitemail involves the target firm issuing a large amount of shares at below-market prices, which are then sold to a friendly third party. This helps the target avoid the takeover by increasing the number of shares the acquirer must purchase in order to gain control, thus increasing the price of the takeover. It also dilutes the shares. Plus, since a friendly third party now owns and controls a large block of shares, the aggregate number of friendly shareholders increases.


Whitemail is a strategy that can be used to fend off an unwanted takeover attempt. It involves issuing shares at a below market price and selling them to friendly a third party. If the whitemail strategy is successful in discouraging the takeover, then the company can either buy back the issued shares or leave them outstanding.

Example of Whitemail

XYZ Corporation has 1,000,000 shares outstanding. ABC Inc wants to acquire XYZ Corp and begins to buy up all of the shares they can in the public secondary market in an attempt to get to a controlling proportion of shares. XYZ Corp gets wind of this and proceeds to institute a whitemail policy. They issue 250,000 new shares at a significant discount to the current secondary market price and sell them all to DEF Industries, which is a company that XYZ has a good relationship with. The increase of outstanding shares from 1,000,000 to 1,250,000 increases the number of shares ABC will need to purchase in order to gain a controlling interest. Plus, the voting rights of all XYZ shares are now diluted, reducing ABC's power to vote for board members who favor their takeover.