Targeted Registered Offering (Greenmail) Definition
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’.
A Little More on What is Greenmail
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 Goodyear’s 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 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.
References for Targeted Registered Offering
Academic Research on Targeted Registered Offering
The Determinants of Successful Micro‐IPOs: An Analysis of Issues Made under the Small Corporate Offering Registration (SCOR) Procedure, Brau, J. C., & Osteryoung, J. S. (2001). Journal of Small Business Management, 39(3), 209-227. This paper examines the application of current literature on IPO investing to micro-IPO investments with the analysis of samples of Small Corporate Offering Registration (SCORs) documents registered in the state of Washington D.C.
Stock price effects and costs of secondary distributions, Mikkelson, W. H., & Partch, M. M. (1985). Journal of Financial Economics, 14(2), 165-194. This study tries to disprove the belief that a large number of shares can be sold at a small cost at current market prices. It also gauges the impact of secondary distributions on prices.
The Offering of Choice in 2008, Pinedo, A. T., & Tanenbaum, J. R. (2008). Int’l Fin. L. Rev., 27, 36. This paper explores market offers for firms to tap into lucrative private financial deals combined with the flexibility of underwritten public offerings.
Going Public Using a Regulation S Stock Offering on the Dubai International Financial Exchange, Shalleck, A. B. (2008). Nanotech. L. & Bus., 5, 75. This paper explores S Stock Offering IPOs in the Dubai International Financial Exchange index.
Investment banking and the capital acquisition process, Smith Jr, C. W. (1986). Journal of Financial Economics, 15(1-2), 3-29. This paper conducts an in-depth study on the process of raising capital and debt in the equity markets and investment banking firms.
OFFERING MICROCREDIT IN KENYAN, LUMINZU, M. J. (2003). This paper presents a study on the microcredit lending market in Keya.
Employee Rewards And The Likelihood Of A Successful Initial Public Offering, Filbeck, G., Thoms, P., & Boscaljon, B. L. (2008). Journal of Business & Economics Research, 6(9). This paper explores the correlation between the launch of successful IPOs and employee rewards.
Challenges to Crowdfunding Offering Disclosures: What Grade Will Your Offering Disclosure Get?, Wilson, Z. J. (2016). Campbell L. Rev., 38, 457. This paper discusses the laws and challenges surrounding crowdfunding campaigns offering securities.
Hedge funds are headed down-market: A call for increased regulation, Greupner, E. J. (2003). This paper calls for increased regulation in the Hedge funds market owing to their poor performance.
Cycles in the IPO market, Yung, C., Çolak, G., & Wang, W. (2008). Journal of Financial Economics, 89(1), 192-208. This paper explores the investment and returns cycles that can be observed in the IPO market.
Can Internet offerings bridge the small business capital barrier, Fisch, J. E. (1998). J. Small & Emerging Bus. L., 2, 57. This paper tries to answer the question of whether the internet is capable of bridging the investment gaps faced by small businesses.
The optimal spread and offering price for underwritten securities, Yeoman, J. C. (2001). Journal of Financial Economics, 62(1), 169-198. This paper posits a theory that helps in calculating the optimal spread between underwritten securities and their offer prices.