The payments made by a ﬁrm to repurchase shares of its outstanding equity from an individual investor in an attempt to eliminate a potential unfriendly takeover attempt are referred to as:
A)a golden parachute.
B)standstill payments.
C)greenmail.
D)a poison pill.
E)a white knight.

Question

Quizplus · Accepted Answer

Greenmail refers to a tactic where a firm buys back its own shares from a hostile bidder at a premium price to prevent a takeover. This is often done to eliminate the threat of a takeover and retain control of the company. This is different from a poison pill, which is a defensive mechanism to make the company less attractive to potential acquirers. Golden parachute refers to a compensation package given to top executives in the event of a takeover or merger, while standstill payments are payments made by the target firm to the acquiring firm to prevent them from making a takeover bid. A white knight refers to a friendly third-party bidder who comes in to acquire the target company to prevent a hostile takeover. Therefore, the best choice is C) greenmail.

The Payments Made by a ﬁRm to Repurchase Shares of Its