Definition
Whitemail is a defensive strategy used by companies facing a hostile takeover bid. The targeted company thwarts the attempt by purchasing a large number of shares at a premium from a friendly third party, which can also include employee share ownership plans or ESOPs. This makes the acquisition much more expensive and less attractive for the hostile bidder.
Phonetic
The phonetics of the keyword “Whitemail” would be: /ˈhwaɪtmeɪl/
Key Takeaways
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- Whitemail is a type of phishing scam where the sender pretends to be a reputable entity in order to trick individuals into providing sensitive data, such as personal, financial, or login credentials.
- These emails are usually crafted to look like they come from a known or trusted sender.
- Guarding oneself from whitemail is important. It requires careful attention to detail, especially in examining the email sender address, the language used, and never clicking on suspicious links or attachments.
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Importance
Whitemail is a significant business/finance term, often used in the context of potential corporate takeovers. It’s a defensive strategy where the target company purchases a considerable amount of its own stock at an elevated price from a would-be acquirer to discourage the takeover attempt. This approach is important because it allows the target company to maintain control instead of being vulnerable to a hostile takeover. Whitemail works to safeguard the interests of the company’s management and shareholders, and helps to protect the company’s strategic direction and business objectives. However, it could potentially increase the company’s debt if funds are borrowed to finance the stock repurchase. Therefore, considering its implications, the term holds substantial relevance in corporate finance.
Explanation
In the context of business and finance, whitemail refers to a tactics employed by corporations aimed at discouraging hostile takeovers. Hostile takeovers possess a significant threat to the existing management of a target company and would often result in a change of control. In retaliation, the target company may resort to defensive strategies, one of which is whitemail. This tactic generally involves the purchase of a large portion of the company’s own shares in the marketplace or acquisition of another company that already owns a substantial stake.The purpose of whitemail is to make the target company less attractive to the prospective acquirer by making a takeover more expensive or difficult. By buying back its own shares, the target company artificially inflates the per-share price, thus making it more costly for the buyer to obtain the necessary amount of shares to complete the takeover. Alternatively, by buying up another company that possesses significant shares, shares of the target company are then spread among a wider base, diluting the potential control of an acquirer. Ultimately, these tactics are utilized to safeguard the interest of the current management and to ensure continuity of its corporate strategies and direction.
Examples
Whitemail is a strategy utilized by companies to prevent a hostile takeover. The targeted company purchases a large number of shares in the company attempting the takeover, essentially threatening to take over the aggressor company. This strategy is typically used as a ‘last resort’ defense. Here are three hypothetical examples:1. ABC Company: In the 80s, ABC Company was the center of a takeover attempt by XYZ Inc. In response, ABC started buying up major stocks of XYZ to prevent them from gaining control. They purchased enough shares to threaten a reverse takeover. Seeing this risk, XYZ backed off, and ABC successfully defended themselves from the hostile takeover.2. DEF Corporation: DEF, an established player in the automobile sector, was under the threat of a hostile takeover by GHI, a fast-growing electric car company. To counter the takeover attempt, DEF strategically started buying a substantial number of shares of GHI. This not only diluted GHI’s stake but also created the potential for DEF to become a significant shareholder in GHI. The threat of reverse takeover led GHI to retreat its initiative.3. MNO Electronics: A well-known tech firm, MNO, was facing a takeover by a larger firm, PQR Technologies. MNO, instead of giving in, began acquiring PQR’s shares in large quantities. The sudden increase in demand caused PQR’s share price to rise, increasing the cost of the takeover. Moreover, the potential reverse takeover scare eventually dissuaded PQR from continuing with their plans. Please note these examples are entirely fictitious and are created to illustrate the concept of whitemail. They share no similarities with real companies or events.
Frequently Asked Questions(FAQ)
What is Whitemail?
Whitemail is a defensive strategy that a company uses to prevent a hostile takeover. This involves purchasing a large amount of shares, thus increasing its debt to make it less attractive to the acquirer.
How does Whitemail work?
Usually, the company that is facing a hostile takeover will start buying their own shares or securities in large amounts. Additionally, they might issue more shares. This consequently increases the company’s debt ratio, making it less attractive to the potential acquirer.
Why would a company choose to use Whitemail as a strategy?
Companies usually use the strategy of Whitemail as a defense mechanism in order to maintain control of their business and ward off the potential acquirer. It helps them to avoid acquisitions they perceive as unfavorable.
What are the drawbacks of Whitemail?
While Whitemail can be an effective tool against hostile takeovers, there are drawbacks. The main risk is the potential for increased debt, which could devalue the company’s shares or make it vulnerable to other inopportune financial situations.
Is Whitemail legal?
Yes, Whitemail is a legal strategy. However, it must be conducted within the guidelines of the trading rules and regulations of the securities industry.
Can Whitemail be seen as unethical in business?
It depends on the situation. While it’s a legal practice, it can be seen as limiting the potential for growth and blocking shareholders from possibly gaining advantages from a successful takeover.
What happens to the company’s stock price during Whitemail?
Typically, when a company starts buying its own shares, it can cause the stock price to rise in the short term. However, due to the increase in debt, if this strategy isn’t effectively managed, it can result in the devaluing of stock in the long term.
Related Finance Terms
- Share buyback
- Defensive strategy
- Corporate takeover
- Hostile takeover
- Shareholder rights plan
