What Is a White Squire?
An investor or friendly corporation that purchases stock in a target business to thwart a hostile takeover is known as a “white squire.” This is comparable to a white knight defense, but because the white squire purchases a portion of the business, the target firm does not have to give up its independence as it would with a white knight.
Workings of a White Squire
Unlike a white knight, a white squire is a conciliatory acquirer who does not demand a controlling stake. A white knight purchases the whole business to prevent a hostile takeover. A white suit purchases a portion of the business. Their stake is significant enough to prevent the bidding business from moving further and give the target company time to reconsider its plan. As an inducement to complete the purchase, the white squire may be promised significant dividends, reduced shares, or a position on the board.
Usually, the white squire will sell its shares when the hostile bidder withdraws. The agreement may be set up such that the shares granted to the white squire are not presented to the hostile bidder, preventing it from ever switching sides.
Particular Points to Remember
In addition to reduced shares and dividends, white squires may get additional perks, like a board seat. This ensures the white squire doesn’t back down from the target firm and instead sticks with them. A contract mandating a white squire to cast a vote supporting the target firm is often signed as part of this.
Although bringing a white squire on board might be beneficial, it could also backfire as they now have some influence over the business. Consequently, companies have the authority to impose a standstill agreement, which stops a white-squire investor from increasing their investment in the company.
An illustration of a white serf
A prime illustration of the white squire argument came in 2013 when Mexican tycoon Carlos Slim’s America Movil sought to acquire the Dutch telecom giant KPN. An independent foundation responsible for protecting KPN was able to stop it.
Disney and CBS have previously used white squires to thwart takeover attempts. CBS allowed Loews Corp. to acquire a 25% share of the business to stop Ted Turner from taking control. But in the end, Loews was dissatisfied with CBS management and pressured the board chair to step down. A white squire may advocate for change if they see problems in their firm, even if their primary role is to be a good influence.
Poison pills, greenmail, the Pac-Man defense, staggered boards, and supermajority rules are more takeover defenses.
Conclusion
- An investor or business that purchases company stock to thwart a hostile takeover is known as a “white squire.”
- Unlike a white knight who buys the whole firm, a white squire acquires a portion.
- White squires only take on enough size to prevent the binding firm from taking control.
- Discounted shares or substantial dividends are two common incentives for a white squire.
