The tactic was used by investors such as T. Boone Pickens and Sir James Goldsmith in the 1980s, who made profits by pressuring companies into repurchasing shares at a premium.
For instance, Goldsmith's group acquired stakes in companies like St. Regis, prompting buybacks at a higher price and yielding substantial profits.
Greenmail is a complex corporate strategy, but legal restrictions and counter-tactics, like imposing limits on formal bids and a 50% excise tax on gains in the United States, have made it less common since the early 1990s.
In return, the bidder agrees to momentarily abandon the takeover attempt and may sign a confidential agreement with the greenmailee, guaranteeing not to resume the maneuver for a period of time.
Greenmail also momentarily protects the company's existing management and employees from termination, demotion, or reduction in wages, which would have most certainly seen their ranks reduced or eliminated had the hostile takeover successfully gone through.
When an investor group led by Sir James Goldsmith acquired 8.6% stake in St. Regis and expressed interest in taking over the paper concern, the company agreed to repurchase the shares at a premium.
At one point, fellow corporate raider Sir Larry Wildman refers to Gordon Gekko as "a two-bit pirate and a greenmailer.
In the suit, the plaintiff alleged that Macellum and Ancora attempted to engage in a greenmail campaign against Big Lots, a publicly traded discount retailer.
[8] Ohio's statute would force the investors to give up any profits it earned from ownership of Big Lots stock if they had engaged in greenmailing.
"[12] In 2003, Michael Ashcroft was criticised by the High Court judge, Mr Justice Peter Smith in Rock (Nominees) Ltd v RCO (Holdings) Plc.
[13] Smith condemned Ashcroft's tactics in relation to the takeover of cleaning company RCO by the Danish firm ISS.