What is a white knight?
When an “unfriendly” bidder or acquirer is about to acquire a corporation, a “friendly” person or organization acquires it for an equitable price. This is known as a “white knight” defense. The hostile suitor is colloquially referred to as the “black knight.”
Even though the target company loses some degree of autonomy, a white knight acquisition remains a more favorable option than a hostile takeover. In contrast to hostile takeovers, white knight scenarios generally involve retaining current management and providing investors with improved compensation in exchange for their shares.
The Workings of the White Knight Defense
The white knight saves an organization that is being hostilely taken over. When negotiating more favorable acquisition terms or to preserve the company’s primary business, company officials frequently seek out a “white knight.” An instance of the former can be observed in the film “Pretty Woman,” wherein Richard Gere portrays corporate raider/black knight Edward Lewis, who reconsiders his initial intention to pillage a company and instead decides to collaborate with its leader.
Prominent instances of white knight rescues include the 1953 acquisition of the almost insolvent ABC by United Paramount Theaters, the 2006 white knight rescue of Schering by Bayer from Merck KGaA, and the 2008 acquisition of Bear Stearns by JPMorgan Chase, which averted the company’s complete insolvency.
The terms “black knight” and “white knight” originate in the adversarial game of chess.
An investor or sympathetic company that purchases an interest in a target company to avert a hostile acquisition is also called a “white squire.” This approach resembles the white knight defense, except the target firm is not required to relinquish its autonomy, as the white squire acquires only a fractional stake in the organization.
Adversary Takeovers
Sanofi-Aventis’ $20.1 billion acquisition of biotech company Genzyme in 2010, Deutsche Boerse AG’s attempted merger with NYSE Euronext for $17 billion in 2011, and Clorox’s denial of Carl Icahn’s $10.2 billion takeover offer in 2011 are a few of the most hostile takeover situations.
However, successful hostile takeovers are uncommon; since 2000, no hostile takeover of a recalcitrant target has exceeded $10 billion in value. In most cases, an acquiring company increases the price per share of the targeted company until shareholders and board members are satisfied. A strict company refuses to be sold. In 2015, this occurred when Mylan, a global leader in generic medications, attempted unsuccessfully to acquire Perrigo, the largest manufacturer of drugstore-brand products, for $26 billion.
Diverse Versions of the White Knight
A gray knight, apart from white and black knights, represents a third prospective candidate for conquest. Although less desirable than a white knight, a gray or gray knight is still preferable to a black knight. In a hostile acquisition, the gray knight emerges as the third prospective suitor, surpassing the white knight in price. While more amicable when compared to a black knight, the gray knight remains motivated by self-interest. Comparable to the white knight, a white squire is a company or individual that exercises a minority stake to assist a struggling business. While this assistance furnishes the organization with sufficient funds to enhance its circumstances, it also permits the existing proprietors to retain authority. A yellow knight is an organization that intended to execute a hostile acquisition but ultimately abandoned the plan to suggest a merger of equals with the target company.
Conclusion
- A white knight defense is a hostile takeover strategy in which a sympathetic company acquires the target rather than the hostile bidder.
- Although the target company’s independence is still compromised, the white knight investor exhibits a greater degree of benevolence towards both shareholders and management.
- A company may utilize various strategies, including white knight operations, to prevent a hostile acquisition.
