How It Works
- 1
Accumulate a significant stake (typically 5-15%) in a target company
- 2
File Schedule 13D signaling potential activist or hostile intentions
- 3
Request private meeting with board to discuss 'strategic alternatives'
- 4
Threaten hostile takeover, proxy fight, or public campaign
- 5
Negotiate premium repurchase of shares at 30-50% above market
Key Mechanics
The 5% disclosure threshold creates a 'point of no return'
Timeline pressure: annual meeting creates hard deadline
Legal framework: Williams Act regulates disclosure but not premium
Board fiduciary duty creates tension with shareholder interests
Regulatory Context
Greenmail became notorious in the 1980s. Some states and companies adopted anti-greenmail provisions, but the practice remains legal in most jurisdictions.