anti-greenmail provision

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An anti-greenmail provision is a provision within a corporate charter that prevents the company’s board of directors from making greenmail payments. 

Greenmail payments refer to payments made by a corporation to buy out the stock of a shareholder at an inflated price. Greenmail payments rose to prominence during the 1980s due to the widespread practice of raiding. Raiders seize control of companies through a hostile takeover and subsequently dismantle the company by selling off all its valuable assets. A company wishing to avoid dismantling has no choice but to utilize greenmail payments and buy out the raider’s interest for whatever price the raider is willing to accept. 

Although greenmail payments avoid the collapse of the raided company, they nonetheless harm the company by reducing the amount of money available for other business purposes. Additionally, while often associated with raiding, greenmail payments have also been used by executives to buy out the shares of people they believe are threatening their positions. 

Anti-Greenmail provisions prevent this damage and reduce the potential for abuse by executives but increase the odds a raider successfully liquidates the company. 

In recent years the prevalence of greenmail has decreased due to the adoption of poison pill clauses and regulatory taxes designed to reduce the profitability of greenmail related practices. 

[Last updated in June of 2022 by the Wex Definitions Team]