Posted in Finance, Accounting and Economics Terms, Total Reads: 525
Bankmail is an agreement between a bank and a company planning a takeover such that the bank can’t finance any other potential acquirer’s bid. The rationale behind a Bankmail agreement is to prevent other potential acquirers from receiving similar finance which might facilitate competitive takeover bids.
Company A wants to Takeover Company B. Company X, Company Y and Company Z are also interested in purchasing the company B.
Hence Company goes to Bank Golden Boy ,the largest bank in the country for arranging for finance for the deal. It also enters into a Bankmail agreement with the bank, hence the bank will lend money only to A and won’t lend to X, Y, Z. Hence the agreement shuts off a source of capital for other bidders.
Importance of Bankmail:
Elaborating on the example , now if X, Y,Z want financing for the deal they have to borrow from other banks at higher costs. This lockup of the Golden Boy bank thus facilitated a winning deal for Company A. Hence there are higher probability of deals getting materialized smoothly.