Greenmail
The practice of a company repurchasing a hostile shareholder's stake at a premium to end a takeover threat.
What is Greenmail?
Greenmail is a corporate defense tactic in which a company repurchases a large block of its own shares from a specific shareholder—typically a corporate raider or activist investor who has acquired a significant stake and threatened a hostile takeover—at a substantial premium to market price, in exchange for the shareholder's agreement to cease acquisition efforts and not acquire additional shares for a specified period. The term blends 'greenback' and 'blackmail,' reflecting the coercive leverage the raider holds. While greenmail effectively removes the immediate takeover threat, it is widely criticized as it uses corporate resources to benefit a single shareholder at the expense of all others and can entrench incumbent management. The Tax Reform Act of 1987 imposed a 50% excise tax on greenmail profits in the United States, substantially curbing the practice.
Example
In 1984, corporate raider Saul Steinberg and his Reliance Group Holdings acquired approximately 11.1% of The Walt Disney Company's outstanding shares and threatened a hostile takeover. To remove the threat, Disney's management paid approximately $325 million to repurchase Steinberg's stake at a significant premium to the then-prevailing market price—an early and prominent example of greenmail that drew widespread criticism from institutional shareholders and fueled the eventual legislative response in 1987.