A person, group or business entity purchases enough shares of your company's stock to enable a hostile takeover or at least to have a say in your operations and management. They offer to let your company buy back the shares, but at a much higher price. In exchange, they won't continue with the attempted takeover and won't purchase any more of your stock. That's called "greenmail."
Laws and regulations preventing companies from repurchasing shares of their stock at inflated prices have helped thwart attempts at greenmail, which saw a rise in the 1980s when corporate takeovers were at a high. In 1987, for example, the Internal Revenue Service (IRS) started taxing profits from greenmail at 50%.
Many greenmail schemes were carried out by corporate raiders who were just seeking money rather than to take over the company whose stock they purchased.
However, greenmail (a mashup of the words "blackmail" and "greenbacks") has not disappeared. For example, from 2011 to 2013, investor Carl Icahn's company Icahn Associates held some 12% of WebMD's stock -- 5.5 million shares. In 2013, the company announced that it was repurchasing the shares for over $177 million.
Companies can include provisions in their corporate charter to help prevent becoming the victims of greenmail. For example, they can include a clause that prevents the board of directors from giving approval to buying back shares of stock at inflated rates.
Greenmail can be costly to your company and to your shareholders. If you're seeking ways to protect your company from greenmail attempts or if you're already the victim of such an effort, it's essential to seek experienced legal guidance to determine your options.