The management of Traynor Enterprises is fighting a takeover attempt led by one of its shareholders. To try and stop this takeover, management decides to offer the shareholder $50 a share if she will sell all of her shares in the firm. Traynor stock is currently priced at $36 a share. This offer is an example of:
A) A poison pill.
B) A share rights plan.
C) Greenmail.
D) A bear hug.
E) A golden handshake.

Question

Quizplus · Accepted Answer

Greenmail refers to the strategy where a company pays a premium to a shareholder for their shares to prevent a takeover attempt. In this scenario, Traynor Enterprises is offering to buy back shares at a premium to stop a takeover, which is a classic example of greenmail.

The Management of Traynor Enterprises Is Fighting a Takeover Attempt