Greenmail | How does Greenmail Works? | Examples - YouTube

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with us is greenmail now we need to understand first what exactly is greenmail is sound little

bit of a new word to you very much your greenmail is a profit making start where in the investor

they buy large states of target company and they the target company of hostile

takeover in the create a situation in such a way that the target company is forced to

buy back their shares at a significant premium now the target form is actually force to its own stock

at 10 increased price to word of the corporate trader this is a kind of blackmail that gives

the corporate trader a good profit by just takeovers in the case of the M&A the mergers

and acquisition this payment is made to put stop okay to on the takeover bid now second

over here greenmail it is a blackmail of a different color okay see this is very challenging situation

for target company they are first to decide between being taken over and paying a high premium to buy back

their owns shares from the corporate trader so

in most circumstances the target firm chooses to pay the premium the

Premium price and the buyback of their shares that has been taken over of the hostile take over part

so basically it is like a blackmail where the Reader ask for ranson amount to release the control of

the shares over the target company so it should be kept in mind that the Reader has no intention

of buying the target company but it just want to makes the profit from the costly premium it

demands from the target company so on accepting

this payment the Reader will stop harassing

the target company for takeover and cannot buy any shares of the target company for that specified

time period though the target company gets back its control over is shares or it may be have an additional

debt of considerable amount which the target company has taken to finance agreement so

term Greenmail is derived from the combination of both blackmail and green bags Dollar how

exactly this thing works how does greenmail works fine see what happens the first

part is the purchase part over here the buying of stake in the target company is done buying

of stake in target company then there is a thing called struggle that doesn't activities

of the greenmail by creating hostel scenario and then there is a thing called sale over

here you are getting and offer to sale their shares at a much more higher price let's have

a look at the process over here purchase travel agency since purchase your corporate trader or

the investor gets hold of the large stake in the target company by purchasing it shares

from the open market in the struggle stage the target company over the hostile

scenario the hostile takeover but the efforts is to sell acquired shares to the target company at

a premium price which is much above the market value so this rate is also makes the promise of not harassing

the target company on repurchasing of the shares by the target company and then their is sale so the

corporate traders sells the shares at a higher price and target company utilizes the shareholder

money to pay the premium for buyback so the target company is left with considerable amount of

debt and value is reduced where is the rate of handsome its like a ranson money that you take I'll

take I'll give you some of the example this topic sounds really interesting I know but

let me let me running you through some examples see there is American investor Carl ica and he bought

approximately 9.9 % stake saxon industry at an average price of 7.21 per share now this

industry there were afraid that he might go for an hostile takeover and he can his stake further

so this industry offer to thing called by back Carl stake at an average price of

10.5 so this represented a premium of 45% of the purchase price and thereby making Carl

a handsome profit this happened that's why given an example so what are the effective

measures that you can take by the target company so the target company should take such measures

during the situations the target company have two options with them okay the first one is the

first option is the target company get get take no action it allow the hostile take over to

actually happened and secondly the target company can pay the premium price about the market value

to over the hostile takeover and buy back its own shares or suppose lets here company X

okay it buys let's say 30% shares of Y and imagine you decide to buy back the shares

at a premium price okay to avoid it so after this greenmail the company X makes a considerable

amount of profit from the resale of the shares at a premium price but the company Y makes significant

what we called as loss and is left with additional debt see although there is a still the existence of the

greenmail in various forms the state has implemented you know regulation which can make it quit

difficult for such companies who plan to repurchase shares investors about the market

price so this this thing have no the thing is that now for company who plans to repurchase

shares for the short-term investor about the market price in the year closely 1987

the IRS that is the internal the internal revenue services introduced in excise tax of 50% okay

of how much excise tax of 50 tax of 505 on the profit made or 50% the profit made on the greenmail

the additionally the companies also have to have the incorporated in difference

difference mechanism which is known as poison pill okay to keep such investor at a pay from

the hostile deposit is not always means in hostile takeover bits but many times it

may lead to know a thing called proxy contents okay which eventually can affect the management

and operations of the company so based on this let me make my final conclusion now on the conclusion

note see this involves buying a significant state undoubtedly take the significant amount

or the stake or in terms of shares or in terms of money forcing the hostile take so then

using this thread you know they make the target company buyback the shares buy back its own shares

okay at a higher price right this is what we learn this is similar to the what we call as blackmail

where the threads are made to establish of benefit and gain profit money is paid to another

company to stop the aggressive behaviour will this was for greenmail greenmail blackmail you know

it's one and the same now we have studied what exactly has gone into all things work

out how does the process goes we took the example of Carl and saxon industries then what are

the measures that can be taken in the particular scenario what IRS is done to improve this

so that's it for this particular topic I hope you have got a great idea regarding greenmail so that's

it for this particular topic if you have learnt and enjoyed watching this video please like and

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