A Theoretical Analysis of Corporate Greenmail

Few issues in corporate law or governance have moved from the wings to the center stage of public attention as rapidly as the issue of negotiated stock repurchases, popularly known as "greenmail." The tactic was little used until recently. With the rise of "corporate raiders" like Victor Posner and Carl Icahn, however, greenmail payments are now more frequent and more controversial. Between April 1983 and April 1984, corporations paid over four billion dollars to repurchase blocks of stock from individual shareholders. In March 1984 alone, four major American companies bought out holders of large minority blocks of shares at substantial premiums, including Warner Communications' repurchase of 5.6 million of its shares from Rupert Murdoch at 33 percent above the market price. Saul Steinberg's greenmail agreement with Walt Disney Productions, concluded later in 1984, was perhaps the best-publicized negotiated repurchase of all.