In business, a white knight is a friendly investor that acquires a
corporation at a fair consideration with the support from the corporation's board
of directors and management. This may be during a period while it is facing a
hostile acquisition from another potential acquirer or it is facing
bankruptcy. White knights are preferred by the board of directors and/or
management as in most cases as they do not replace the current board or
management with a new board, whereas, in most cases, a black knight will seek to
replace the current board of directors and/or management with its new board
reflective of its net interest in the corporation's equity.
The first type, the white knight, refers to the friendly acquirer of a target
firm in a hostile takeover attempt by another firm. The intent of the
acquisition is to circumvent the takeover of the object of interest by a
third, unfriendly entity, which is perceived to be less favorable. The
knight might defeat the undesirable entity by offering a higher and more
enticing bid, or strike a favorable deal with the management of the object of
acquisition. The second type refers to the acquirer
of a struggling firm that may not necessarily be under threat by a hostile
firm. The financial standing of the struggling firm could prevent any other
entity being interested in an acquisition. The firm may already have
huge debts to pay to its creditors, or worse, may already be bankrupt. In such
a case, the knight, under huge risk, acquires the firm in crisis. After
acquisition, the knight then rebuilds, or integrates the firm.
A number of variations of the term have been used and these include: a grey
knight which is an acquiring corporation or individual that enters a bid for a
hostile takeover in addition to the target firm and first bidder, perceived
as more favorable than the black knight, but less favorable than the white
knight. Also, a white squire, which is similar to a white knight except it only
exercises a significant minority stake, as opposed to a majority stake. A white
squire doesn't have the intention, but rather serves as a figurehead in defense
of a hostile takeover. The white squire may often also get special voting rights
for their equity stake. Hostile firm's strategies
The strategy that is usually employed by the Hostile Firm is making an offer more
lucrative than the White Knight's, so that the shareholders consider rejecting
the White Knight's bid. This, however, can lead to bidding wars and finally to
overpaying, by one or the other, for the target firm.
Another option is known as the NL strategy. Here, the hostile firm allows
the white knight to move ahead and waits for the acquisition to take place. Once
things are settled between the two entities, the Hostile Firm launches a
takeover offer for the White Knight. This takeover offer is generally a
hostile one. The target can enter into standstill agreements with the White
Knight to prevent it from turning Gray Knight.
Examples of white knights 1953 - United Paramount Theaters buys
nearly bankrupt ABC 1980 - Renault buys a controlling stake
in American Motors, which saves the struggling American automaker from
bankruptcy. 1982 - Allied Corporation buys Bendix
Corporation in a situation involving the "Pac-Man defense". Allied is drafted in
when the company that Bendix tries a hostile takeover on fights back by
buying up Bendix stock in attempt to create a reverse hostile takeover.
1984 - Chevron Corporation acquired Gulf Oil after Gulf tried being a white
knight to Citgo in 1982 in order for Citgo to avoid a hostile takeover by T.
Boone Pickens. Pickens then turned his attention to Gulf, leading to the
Chevron-Gulf deal. 1984 - Sid Bass and his sons buying
significant interest in Walt Disney Productions as a defense against Saul
Steinberg's hostile bid for the company. 1986 - George Soros's Harken Energy
buying George W. Bush's Spectrum 7 1987 - Kluwer Publishers merged with
Wolters Samson as a defensive move against an attempted hostile takeover of
Kluwer by Elsevier. 1998 - Compaq merging with financially
weak DEC 2001 - Dynegy attempts to merge with
Enron to cover Enron's massive debts. 2003 - SAP was seen by analysts as the
most likely to help defeat Oracle's hostile bid for PeopleSoft, but it came
to nothing. 2006 - Severstal almost acted as a white
knight to Arcelor as the merger negotiations were in place between
Arcelor and Mittal Steel 2006 - Bayer acted as a white knight to
Schering as the merger negotiations were in place between Schering and Merck KGaA
2007 - Nissin Foods launching a friendly 37bn yen bid for Myojo Foods after US
hedge fund Steel Partners offered 29bn yen to buy the firm.
2008 - JPMorgan Chase acquired Bear Stearns allowing Bear Stearns to avoid
insolvency after Bear Stearns stock price suffered a precipitous decline,
with its market capitalization dropping by 92%.
2008 - PNC Financial Services bought National City Corp. after National City
was denied TARP funds in order to stay afloat due to increasing concerns that
National City would fail due to the subprime mortgage crisis.
2009 - Fiat takes over Chrysler, saving the struggling automaker from
liquidation. See also
Economics Takeover
Microeconomics Industrial organization
References