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Definition of 'Greenmail'

Greenmail is the practice of buying enough shares of a company's stock to threaten a takeover, then selling those shares back to the company at a premium. The term is derived from the color of money, which is often green.

Greenmail is considered a form of corporate blackmail because it can force a company to pay a premium for its own shares, even if the company does not want to be taken over. This can damage the company's stock price and its reputation.

Greenmail is illegal in some countries, but it is still a problem in many others. In the United States, greenmail is not illegal per se, but it can be considered a violation of the Securities Exchange Act of 1934.

There are a number of ways to prevent greenmail. One way is for companies to have poison pills in place. A poison pill is a provision in a company's charter that makes it difficult or impossible for a hostile takeover to succeed. Another way to prevent greenmail is for companies to have a staggered board of directors. A staggered board makes it more difficult for a hostile bidder to gain control of the board of directors.

Greenmail is a serious problem that can damage companies and their shareholders. It is important for companies to be aware of the risks of greenmail and to take steps to protect themselves.

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