Greenmail, White Knights, and Shareholders' Interest

Andrei Shleifer and Robert Vishny

RAND Journal of Economics, 1986, vol. 17, issue 3, 293-309

Abstract: This article develops a model in which greenmail and other forms of management resistance to takeovers can benefit shareholders. In particular, discouraging some potential acquirers may increase shareholder wealth because it encourages others to pursue a combination with the target. This occurs because the number of competing acquirers is reduced and because resistance can signal that the target does not have access to a "white knight." This signalling effect may explain why share prices decline after management resists a takeover, even when such resistance is value-maximizing in the long run.

Date: 1986
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