Final answer:
Greenmail is a method used in hostile takeover scenarios where an entity buys a significant stock in a target company and then threatens a takeover, leading the company to repurchase shares at a premium.
Step-by-step explanation:
Greenmail is a strategy used in the context of hostile takeovers, where a company or individual purchases a significant block of stock in a target company. By amassing a large enough stake, the buyer is seen as a potential threat to take over the company. In response, the target company may buy back its shares at a premium to avert the takeover, which is often a hefty price compared to the market value. This process can be lucrative for the shareholder engaging in greenmail, but it can be costly for the target company and its remaining shareholders.
The term greenmail refers to the combination of "green," colloquially known for money, and "blackmail," due to the coercive nature of the tactic. It is seen as a method for the shareholder to profit at the company's expense without actually taking over the company or being interested in its long-term viability.