Which of the following is a post-offer takeover defense mechanism in which target company buys back shares at a significant premium?

Correct option is C

Greenmail is a post-offer takeover defense mechanism in which the target company repurchases its own shares from a hostile bidder (or potential acquirer) at a substantial premium over the market price. The purpose of this strategy is to dissuade the acquirer from continuing the takeover attempt.

• A company (the acquirer) buys a significant stake in the target company, creating pressure or threat of a hostile takeover.

• To avoid this, the target company pays a premium to buy back the shares from the acquirer.

• This repurchase is often done using company funds, which may not always be in shareholders' best interest but helps management retain control.

Information Booster:

• Greenmail is a defensive strategy used after a takeover attempt has been made (i.e., post-offer).

• It reduces the threat of a hostile acquisition by buying out the bidder’s stake.

• This is not a preventive measure, but a reactive one.

• Seen more commonly in the 1980s takeover era, though less frequent now due to corporate governance concerns.

• Can signal management’s unwillingness to cede control, even at shareholder cost.

• It may be discouraged or restricted by regulatory frameworks in some jurisdictions.

• Often criticized by shareholders and analysts as a misuse of corporate funds.

Additional Knowledge:

(a) Poison pills

• A pre-offer defense strategy.

• It involves issuing rights or options to existing shareholders (except the acquirer) to purchase more shares at a discount, thereby diluting the acquirer’s stake.

• It is not about buying back shares but about making the takeover unattractive.

(b) Golden parachute

• Refers to large financial compensation packages offered to top executives if they are ousted following a takeover.

• This strategy benefits executives, not a direct action against the acquirer.

• It is not related to share buybacks or repurchasing.

(d) Crown jewel defense

• In this method, the target company sells off its most valuable assets ("crown jewels") to make itself less attractive to the acquirer.

• It is a drastic measure and can weaken the target.

• Does not involve buying back shares from the acquirer.