Word: greenmailing
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...investment world's reaction last week after Financier Saul P. Steinberg zapped Walt Disney Productions with a market ploy that made him $32 million richer but may have left Disney much weaker. Steinberg, 44, had just pulled off the latest example of a spreading tactic called greenmail, Wall Street's version of blackmail...
...greenmail deal, an investor buys up enough of a company's stock to pose either a takeover challenge or the threat of a proxy fight. Worried because they may lose their jobs, the top men too often capitulate and offer to buy back the greenmailer's stock at a premium price in exchange for a promise that the raider will not go after them again, at least in the near future. In cases just this year, Texaco bought back 9.8% of its shares for $1.28 billion from the Bass family, Warner Communications paid Rupert Murdoch $180.6 million...
...tactics used by Disney and other greenmail targets came under very strong criticism last week. Said Jay Marshall of Merrill Lynch: "Clearly, in many cases, the executives are just messing up the company. Management's feeling is: cripple us, poke out our eyes and maybe they won't like us any more." That kind of scorched-earth policy may save the jobs of top management, but it does not help investors, who see the greenmailer make a huge profit while their shares decline in value. Said T Boone Pickens, a frequent opponent of entrenched corporate offi cials...
...greenmailing of Walt Disney was successful, but it may change the whole greenmail game. The New York Stock Exchange and the Los Angeles office of the Securities and Exchange Commission are looking into possible insider trading of Disney stock. The SEC had already pro posed legislation that would require stockholder approval of stock buy-back plans, and the Disney debacle is sure to win it support. Moreover, Democratic Congressman Timothy Wirth of Colorado has conducted hearings that may lead to a legislative crackdown on questionable takeover tactics...
...Greenmailers like Icahn contend that acquisitions serve a useful purpose by ousting incompetent managers who fail to make the most of a company's assets. He argues that if antigreenmail laws are enacted, they should be accompanied by measures to ensure that bad bosses cannot entrench themselves at the expense of shareholders. Actually, it is usually the stockholders, who do not have the same opportunity to sell their stock at a premium price, who are hurt by greenmail...