What is a Targeted Registered Offering?

Greenmail is the green counterpart of blackmail in that it serves the purpose of threatening a hostile takeover from a specific target by buying enough percentage of shares in the target firm, and then goading the target into buying back these shares at a premium. This substantial sum paid to repurchase the shares and avoid a hostile takeover is called Greenmail.

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How does Greenmail Work?

Greenmail is the windfall acquired via the open threat of a hostile takeover. It prevents the takeover during mergers and acquisitions by throwing money at the problem, hence the name. Companies are forced to buy back their shares at inflated prices to deal with an aggressive majority shareholder, a.k.a a corporate raider. Greenmail affords the target firm some breathing room to negotiate with the shareholder, who may or may not agree to halt all buying and stop threatening to takeover the firm. Greenmail is a combination of blackmail+greenback dollars. Corporate mergers in the 1980s saw a huge wave of greenmails derailing their targets. Most corporate raiders initiate hostile takeover bids with the sole intention of raking in some moolah. The merger never sees the light of the day. 

The Gentleman Greenmailer 

A prolific example of a corporate raider is Sir James Goldsmith, known for orchestrating two very high profile takeover campaigns. Known as the Gentleman Greenamiler, he targeted Goodyear Tire and Rubber Company as well as St. Regis Paper Company in the 1980s to earn a profit of $144 million. Sir James bought an 11.5% stake in Goodyear tires at $42/share in 1986. He then filed a takeover bid with the Securities & Exchange Commission (SEC), proposing to sell off all of Goodyears assets except the tire business, once he took over. To halt his attempt, he offered to sell back Goodyear, his stake in the company for $49.50/share. Known as the Goodbye Kiss, this strong arming tactic eventually lead to Goodyear buying back its stocks for $50/share, costing it $2.9 billion, while Sir James pocketed a cool $93 million within 2 months of setting this plan afoot. 

Greenmail Outlawed 

Greenmail is much more stringently regulated in recent times with an excise tax of 50% levied on such profits by the Internal Revenue Service (IRS) since 1987. It still occurs in corporates but most regulatory restrictions prevent companies from buying back shares above market prices from short-term investors. Companies also resort to poison pill tactics to thwart greenmail attempts. Greemail is sometimes used to put up proxy contests that can derail management goals and operations.