Greenmail and Standstill Agreement: Understanding the Basics
Greenmail and standstill agreement are two terms that are commonly used in the corporate world, but they are often misunderstood. Both of these terms are related to the concept of hostile takeovers, which has become quite popular in recent times. In this article, we will discuss what greenmail and standstill agreement mean and how they affect the corporate landscape.
Greenmail
Greenmail is a term that is used to describe a situation in which a company buys back its own shares from a hostile bidder at a premium price. The act of buying back shares at a premium is referred to as greenmail because the payment is made to the hostile bidder as an inducement to withdraw their takeover bid. The term “greenmail” refers to the fact that the hostile bidder is paid a premium price to go away, similar to the way a kidnapper might ask for ransom money to release their hostage.
Greenmail is a tactic that is used by companies to avoid a hostile takeover. By buying back shares at a premium, the company is able to avoid the takeover bid and maintain control of its operations. However, greenmail is not always effective, and it can be quite expensive for the company, particularly if the hostile bidder demands a huge premium.
Standstill Agreement
A standstill agreement is a contract between a company and a hostile bidder that limits the bidder`s ability to acquire shares of the company for a specific period of time. The agreement usually includes a provision that prohibits the bidder from acquiring a controlling interest in the company without the consent of the board of directors.
The purpose of a standstill agreement is to give the company time to evaluate the hostile bid and explore alternative options for maintaining control of its operations. In some cases, the standstill agreement may be used as a bargaining tool to negotiate a better offer from the hostile bidder or to encourage other potential bidders to emerge.
In Conclusion
Greenmail and standstill agreement are two terms that are commonly used in the corporate world. While they are both related to hostile takeovers, they have different implications for companies and investors. Greenmail involves buying back shares at a premium to avoid a hostile takeover bid, while a standstill agreement limits the bidder`s ability to acquire shares of the company for a specific period of time. As a professional, it is important to understand these terms and their implications to ensure that your content is accurate and informative.
