Yellow Knight
A yellow knight is a company that begins with a hostile takeover bid but then abandons the aggressive approach and proposes a merger of equals with the target instead. The shift typically reflects a reassessment of costs, takeover defenses, or bargaining position.
Key takeaways
- A yellow knight starts as a hostile bidder and later seeks a friendly merger.
- The change often occurs after the bidder discovers higher costs or stronger defenses than expected.
- The term is derogatory, implying the bidder backed down and lost negotiating leverage.
How yellow knights operate
Yellow knights initiate takeover attempts without the target’s support. If the target resists—through defensive measures, shareholder opposition, or by demanding a higher price—the bidder may conclude a hostile acquisition is impractical. Rather than continuing an expensive or uncertain fight, the bidder proposes a merger, positioning the deal as a cooperative alliance rather than a forced purchase.
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This U‑turn can reflect:
* Underestimated acquisition costs or required premiums.
Unanticipated defensive measures (poison pills, staggered boards, etc.).
Weakening bargaining power after a public rejection.
Why the name?
“Yellow” evokes cowardice and retreat. The label “yellow knight” is therefore pejorative, suggesting the bidder lost its nerve and shifted to a friendlier strategy to salvage an opportunity to access the target’s assets.
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Other “knight” types in M&A
M&A discussions often use color-coded labels to describe bidders’ behavior:
- Black Knight
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A persistent hostile bidder that continues its takeover attempt despite management opposition. Often seen as aggressive and disruptive.
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White Knight
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A friendly acquirer that rescues the target from a hostile suitor, typically offering terms acceptable to incumbent management and protecting core operations.
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Grey (Gray) Knight
- Falls between white and black. Seen as more palatable than a black knight but not as desirable as a white knight; may leverage its relative friendliness to negotiate favorable terms.
Bottom line
“Yellow knight” describes a bidder that shifts from hostility to cooperation after reassessing the feasibility or cost of a takeover. The term highlights strategic and reputational consequences in M&A negotiations when a bidder retreats from an initial aggressive stance.