White Knight

Key takeaways

• A white knight is a friendly buyer that acquires a company to prevent a hostile takeover.
• The white knight typically offers better terms or preserves management and operations compared with an unfriendly bidder.
• White knights are one of several defensive strategies; others include poison pills, golden parachutes, and crown-jewel defenses.

What is a white knight?

A white knight is a friendly investor or company that steps in to buy a target firm facing a hostile takeover. The target’s board and management usually prefer this alternative because it often preserves management, offers more favorable financial terms to shareholders, and maintains the company’s operations more intact than the hostile bidder would.

How the white knight strategy works

• When an unwelcome bidder (often called a black knight) pursues control, the target’s management may solicit a white knight.
• The white knight makes a competing offer—typically at a premium or with more favorable conditions—to acquire the target.
• After the deal, the white knight may keep the existing management and business structure rather than replace them.
• The primary goal is to secure a more acceptable outcome for shareholders and the board than the hostile acquirer would provide.

Types of “knights” and other bidders

• Black knight: An unfriendly acquirer that launches an unsolicited, hostile bid and may try to bypass the target’s board.
• Gray knight: A third bidder that is friendlier than a black knight but still pursues its own interests; can complicate negotiations.
• Yellow knight: A party that initially planned a hostile takeover but instead proposes a merger of equals.

White knight vs. white squire

• White knight: Purchases a controlling stake or buys the company outright, ending the target’s independence but on preferable terms.
• White squire: Buys a large minority stake just large enough to block a hostile takeover, allowing the target to retain independence. The white squire may receive discounts or a board seat and can later sell the stake once the threat passes.

White knight vs. poison pill

• White knight: Involves another company buying the target to prevent a hostile bidder from succeeding.
• Poison pill: A defensive mechanism used by the target company to dilute potential acquirers’ holdings or make the acquisition prohibitively expensive without a negotiated agreement.

Hostile takeovers and other defenses

A hostile takeover occurs when an acquirer attempts to gain control without the target board’s approval. Targets have several defensive options, including:
* Soliciting a white knight or white squire
Poison pill (shareholder rights plan)
Golden parachute (large payouts to executives to deter takeover)
Crown-jewel defense (selling or encumbering valuable assets)
Pac-man defense (target attempts to acquire the would-be acquirer)

Successful hostile takeovers of large, unwilling targets are difficult and relatively uncommon, particularly for very large deals.

Notable examples

• United Paramount Theatres’ 1953 acquisition of ABC — an early example of a friendly rescue.
• Bayer’s 2006 intervention to rescue Schering from a hostile approach by Merck KGaA.
• JPMorgan Chase’s 2008 acquisition of Bear Stearns, which helped prevent Bear Stearns’ collapse.
  Other high-profile hostile or contested situations include AOL–Time Warner (2000), Sanofi’s bid for Genzyme (2010), Deutsche Börse’s attempted merger with NYSE Euronext (2011), and Carl Icahn’s proposal to Clorox (2011). Attempts to force large sales can be especially difficult; for example, Mylan’s $26 billion bid for Perrigo failed in 2015.

Conclusion

A white knight provides a negotiated, generally more acceptable exit for a company under threat of a hostile takeover. While it does not preserve full independence, it typically secures better terms for shareholders and management than an unfriendly acquirer would. The white knight is one option among several defensive tools companies use to protect their strategic interests.