GREENMAIL IS the practice of buying back raiders' shares at a higher market price in order to block a hostile takeover. R. Edward Freeman and colleagues (1987) distinguished between the threat condition for greenmail and the compliance condition. The threat condition to the holding company consists of the greenmailer threatening to engage in a hostile takeover of a company unless the management buys back the greenmailer's stock at a premium.

The compliance condition is simply that the management is forced to buy back or repurchase greenmailer's stock holdings at a costly premium. This distinction allows us to consider the morality of greenmail under two basic heads: The criminality of the threat of greenmail, and the morality of exacting compliance.

Managers' behavior is most often dictated by career ...

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