1. A tender offer is when a party offers to pay a specific price (in cash) for a specified number of shares in a company. The shares may be enough to control the company, or the investor may be trying to purchase all shares in the company. Tender offers are made for some amount over the current market price, which provides current stockholders with incentive to sell their existing shares, and are advertised in business journals and through brokers. If the investor does not receive enough shares offered (tendered) to meet his requirements, he may withdraw the offer. If more shares are tendered than were requested, the investor may purchase the additional shares on a prorated basis. This is a departure from the procedure in the 1960s when investors were able to either purchase the shares on a prorated basis, or purchase shares on a first-come, first-served basis.
A hostile takeover is a takeover that occurs when someone (or a group of investors) considered hostile to the current management of an organization purchases an adequate amount of stock to control a company. Hostile takeovers can be compared to friendly takeovers, in which all parties agree to the transaction. Hostile takeovers generally result in significant changes in the organization, either in management changes, or in the way the company is operated. In some cases, divisions of the newly acquired company are sold off and the new owners take profit from the sale. In this way, hostile takeovers can result in the dismantling of the companies they originally sought to control.
Greenmail is the practice of issuing payments to would-be buyers in hostile takeovers. By offering payoffs to these investors, companies are able to retain their independence while providing the investors with cash payments that meet their requirements and cause them to cease seeking control of the company. Phillips Petroleum is an example of how greenmail can work to the disadvantage of ...