Greenmail
Candlefocus EditorGreenmail is seen as a form of corporate extortion by critics who argue that it puts firms in a weakened financial position, since they must often borrow or use other resources to pay the premium. Additionally, it allows the greenmailer to make a large profit with minimal risk, making the practice attractive to hostile investors.
The practice of greenmail first emerged in the 1980s and quickly grew in popularity. This period saw some of the first anti-greenmail provisions put into effect, such as laws, regulations, and taxes. These were largely successful in curbing the practice by making it more difficult for greenmailers to make a large profit with minimal risk.
Despite the decrease in greenmail practices, the issue continues to remain controversial. Proponents argue that greenmail offers a market-driven solution to shareholder disputes and provide incentive for greater potential rewards without creating too much risk. However, critics claim that greenmail is still tantamount to extortion and often puts firms in a difficult financial position.
Overall, greenmail continues to remain controversial despite the anti-greenmail provisions put in place in the 1980s. For now, understanding the history of greenmail and its potential risks is important in determining whether a company should choose to pay a greenmailer.