Bankmail is when a bank assures a company that it will not finance another rival firm for an acquisition. The agreement may be between the bank and the firm considering carrying out an acquisition, or the target-company of a hostile takeover.
The practice of bankmail is used as leverage in acquisition negotiations, and also as a tactic to reduce the likelihood of a takeover occurring.
Whilst clearly not completely preventing other companies from getting financing for their acquisition elsewhere – after all, there are plenty of other banks – experts say it usually provides some breathing space and leverage for the company seeking the arrangement.
Cheetah Inc. wants to acquire Rabbit Inc., but so does Eagle Inc. Cheetah comes to a ‘bankmail’ agreement with its bank, which means the bank refuses to fund Eagle’s takeover plans.
Bankmail may provide breathing space
When a company is making plans for an acquisition or merger, or simply considering it, financing is typically a major hurdle. If a business feels threatened by a rival, entering a bankmail agreement with a bank will force the opponent to find funds elsewhere or simply abandon the plan.
While the rival is wondering what to do – look elsewhere for funding or give up – the firm that arranged the bankmail agreement has time to move in rapidly and complete the deal.
A strategy used by the prey
As mentioned above, a bankmail agreement may also be sought by a company that is being targeted for acquisition but does not want to be bought, i.e. a hostile takeover.
According to the Financial Times’ business glossary, the FT Lexicon, bankmail is:
“When a bank agrees with a company seeking to acquire another firm that it will not finance a competing bid from a third party.”