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Hedge Fund Monthly
 
Hushmail: Are Activist Hedge Funds Breaking Bad?
Mark D. Gerstein, Bradley C. Faris, Timothy P. FitzSimons and John M. Newell
Latham & Watkins LLP
July 2014
 

Increasingly, some activist hedge funds are looking to sell their stock positions back to target companies. How should the board respond to hushmail?

The rise and fall of greenmail

During the heyday of takeovers in the 1980s, so-called corporate raiders would often amass a sizable stock position in a target company, and then threaten or commence a hostile offer for the company. In some cases, the bidder would then approach the target and offer to drop the hostile bid if the target bought back its stock at a significant premium to current market prices. Since target companies had fewer available takeover defenses at that time to fend off opportunistic hostile offers and other abusive takeover transactions, the company might agree to repurchase the shares in order to entice the bidder to withdraw. This practice was referred to as “greenmail,” and some corporate raiders found greenmail easier, and more profitable, than the hostile takeover itself.

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