What is greenmail?
Practice reportedly saw a resurgence in 2013
Greenmail refers to the practice of buying shares of a company’s stocks and then threatening some sort of “hostile takeover” unless the company repurchases the stock at a higher price, according to Cornell Law School’s Legal Information Institute's definition.
The Corporate Finance Institute describes the practice as being similar to blackmail but involving “money that is paid to another company to prevent aggressive behavior (i.e. an unwanted takeover).”
Greenmail was big in the 1980s, according to the institute, which estimated that companies coughed up more than $4 billion in greenmail from April 1983 to April 1984.
A prominent case of what has been criticized as greenmail is from the mid-1980s and involved financier Sir James Goldsmith and Goodyear Tire & Rubber Co.
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Goldsmith had threatened a hostile $49-a-share bid for Goodyear. But he sold back his stake and ended the threat after Goodyear launched a restructuring plan it indicated was worth upward of $50 a share.
Goodyear’s stock, however, remained well below $45, and investors who bought the stock expecting to get $49 a share or more suffered heavy losses, at least on paper.
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Goldsmith received $49.50 for each of his Goodyear shares plus money to cover expenses that Smith Barney estimates amounted to an additional $3 a share, or a total of $52.50 a share. The profit on his Goodyear investment approached $90 million.
According to the Harvard Law School Forum on Corporate Governance, the practice saw a resurgence around 2013. More modern forms of greenmail do not necessarily always include takeover threats "but instead typically involves the actual or implied threat of a proxy contest that would effect major corporate change."
The Associated Press contributed to this report.