GREENMAIL
A corporation’s attempt to stop a takeover bid by paying a price above market value for stock held by the aggressor.
Greenmail is a practice in corporate MERGERS AND ACQUISITIONS. Like blackmail, the
concept after which it is named, greenmail is
money paid to an aggressor to stop an act of
aggression. In the case of greenmail, the aggres-
sor is an investor attempting to take over a cor-
poration by buying up a majority of its stock,
and the money is paid to stop the takeover. The
corporation under attack pays an inflated price
to buy stock from the aggressor, known popu-
larly as a corporate raider. After the greenmail
payment, the takeover attempt is halted. The
raider is richer; the corporation is poorer but
retains control.During a great wave of corporate
mergers in the 1980s, the practice of paying
greenmail became controversial. Critics viewed
it as harmful to U.S. business interests. Portray-
ing the transaction as little more than a bribe,
they argued that some corporate raiders began
takeover bids simply to earn profits through
greenmail. Corporate shareholders also pro-
tested the practice. By the mid-1990s, state legis-
latures had taken the lead in opposing greenmail
through legislation.
The increase in corporate mergers in the
1980s made the hostile corporate takeover a
familiar event. Before the decade’s multi-billion-
dollar takeovers, corporate mergers usually
involved a mutual agreement. In contrast, hos-
tile takeovers ignore the target corporation’s
management. One form of hostile takeover
involves stock. Whoever owns the most stock
controls the corporation. Instead of entering
negotiations with management, corporate
raiders go to the corporation’s stockholders with
offers to buy their stock. Not only the means but
also the goals of these acquisitions differ from
those of earlier acquisitions. Prior to the 1980s,
mergers generally occurred when larger interests
bought up smaller competitors in similar indus-
tries, with an eye toward dominating a particu-
lar market. In hostile takeovers, corporate
raiders often intend to break up and sell a cor-
poration after the takeover is complete. Their
interest commonly lies in earning enormous
short-term profits from selling a company’s
assets, motivating corporations to try to protect
themselves against takeovers.
Greenmail is one of an array of strategies,
ranging from changing corporate bylaws to
acquiring debt that makes the corporation a less
attractive target, used to deter raiders. It is an
expensive alternative, as was illustrated when
investor Saul P. Steinberg attempted to take over
the Disney Corporation in 1984. Steinberg was
known for his concerted efforts in the takeover
field, having previously targeted Chemical Bank
and Quaker State. In March 1984, his purchase of
6.3 percent of Disney’s stock triggered concern at
the corporation that a takeover was in progress.
Disney management quickly announced an
approximately $390 million acquisition of its
own that would make the company less attrac-
tive. After this maneuver failed, Disney’s direc-
tors ultimately bought Steinberg’s stock to stop
the takeover. Steinberg earned a profit of about
$60 million.
The Disney case illustrates a major criticism
of greenmail: other stockholders blame corpo-
rate directors for showing undue favoritism to
corporate raiders, who are paid exorbitant sums
for stock whereas the stockholders are not. This
criticism formed the basis of a lawsuit that pro-
duced one of the few court decisions condemn-
ing greenmail outright. In 1984, Disney
stockholders sued the corporation’s directors as
well as Steinberg and his fellow investors, seek-
ing to recover the amount paid as greenmail.
They won an INJUNCTION from the Superior
Court of Los Angeles County, which placed
Steinberg’s profits from the sale in a trust. The
verdict was upheld on appeal (Heckmann v.
Ahmanson, 168 Cal. App. 3d 119, 214 Cal. Rptr.
177 [Cal. Ct. App. 1985]). In ordering the prof-
its put in a trust, the court sought “to prevent
unjust enrichment” that would otherwise
“reward [Steinberg] for his wrongdoing.” In
1989, Steinberg settled with the plaintiffs for
approximately $21.1 million.
Although greenmail’s heyday was in the
1980s, it continued to be controversial in the
1990s. Criticism of greenmail grew out of a
larger condemnation of the way in which corpo-
rate raiders had rewritten the rules of mergers
and acquisitions in an avaricious, shortsighted
manner. Some critics viewed this trend harshly.
In his 1995 work on the subject, Professor David
C. Bayne portrayed greenmail as a pact involv-
ing EMBEZZLEMENT by corporate directors and
blackmail by corporate raiders. Bayne said
greenmail is “nothing other than a recondite
species of the broader genus Corporate Bribery,
and as such is intrinsically illegitimate.” States
increasingly viewed greenmail in the same light.
Most states had enacted antitakeover laws, and
several had anti-greenmail provisions. The Ohio
and Pennsylvania laws were among the toughest,
requiring raiders to return greenmail profits to
the target corporation (Ohio Rev. Code Ann.
§ 1707.043 [Anderson Supp. 1990]; 15 Pa. Cons.
Stat. Ann. §§ 2571–2576 [Purdon Supp. 1991]).
Some people doubt the constitutionality of
these laws, and the issue of greenmail remains
