Bankmail is an agreement between a bank and a firm pondering a takeover, or a firm which is about to experience a hostile takeover. Under the terms of the agreement, the bank refuses to provide financing to rival firms. This practice is used as leverage in takeover negotiations, and as a anti-hostile takeover tactic. While bankmail does not eliminate the competition or the risk of a takeover, it will create some breathing room and leverage.
When a firm is considering a takeover or merger with another firm, financing is usually a major issue. If the firm feels threatened by an opponent, it may enter into a bankmail agreement, thus forcing the opponent to seek financing elsewhere or abandon the deal. While the opponent considers its options, the original firm may be able to quickly move in and finish the deal.
The tactic may also be used by a firm which is at risk of a hostile takeover. A hostile takeover occurs when a another firm purchases large amounts of the first firm's stock on the open market, thereby gaining control of the firm. This problem is a risk for publicly traded companies, especially when they seem like they might be lucrative acquisitions. The board of the company is essentially powerless, as the firm executing the takeover concentrates power by holding a majority of the stock.
In the instance of a hostile takeover, bankmail can prevent a hostile takeover or merger by restricting the funds available to the rival firm. In addition, it allows the vulnerable firm to pursue other avenues, hopefully resolving the situation to satisfaction. This time may give the firm a chance to come up with a working strategy to prevent the takeover, and more importantly it allows the target firm to attempt to muster some resources of its own.
For banks, a bankmail agreement can be advantageous because it ensures customer loyalty. Many companies represent substantial accounts for the banks that finance them. By entering into a bankmail agreement, the bank indicates that it supports the client in its endeavors, encouraging the client to continue patronizing that bank. The company attempting the acquisition, of course, can seek financing through another bank, as bankmail only restricts lending from one financial institution.
A bankmail agreement may also include a extension of financing for the company which requests the agreement. Therefore, the bank benefits by securing a financial agreement as well as retaining a valued client.
