White Knight

What Is a White Knight?

A white knight is a hostile takeover defense by which a 'friendly' individual or company procures a corporation at fair consideration when it is on the verge of being taken over by an 'unfriendly' bidder or acquirer. The unfriendly bidder is generally known as the "black knight."

Albeit the target company doesn't stay independent, acquisition by a white knight is as yet preferred to the hostile takeover. Dissimilar to a hostile takeover, current management regularly stays in place in a white knight scenario, and investors receive better compensation for their shares.

How a White Knight Defense Works

The white knight is the savior of a company subject to a hostile takeover. Frequently, company authorities search out a white knight to safeguard the company's core business or to haggle better takeover terms. An illustration of the former should be visible in the film "Lovely Woman" when corporate raider/black knight Edward Lewis, played by Richard Gere, had a change of heart and chosen to work with the head of a company he'd initially wanted to scour.

A few outstanding instances of white knight salvages are United Paramount Theaters 1953 acquisition of the almost bankrupt ABC, Bayer's 2006 white knight salvage of Schering from Merck KGaA, and JPMorgan Chase's 2008 acquisition of Bear Stearns that forestalled their complete insolvency.

The terms white knight and black knight can find their starting point the ill-disposed game of chess.

A white squire is comparably an investor or friendly company which purchases a stake in a target company to forestall a hostile takeover. This is much the same as a white knight defense, besides here the target firm doesn't need to surrender its independence as it does with the white knight, in light of the fact that the white squire just purchases a partial share in the company.

Hostile Takeovers

A couple of the most hostile takeover situations incorporate AOL's $162 billion purchase of Time Warner in 2000, Sanofi-Aventis' $20.1 billion purchase of biotech company Genzyme in 2010, Deutsche Boerse AG's blocked $17 billion merger with NYSE Euronext in 2011, and Clorox's dismissal of Carl Icahn's $10.2 billion takeover bid in 2011.

Fruitful hostile takeovers, be that as it may, are rare; no takeover of a reluctant target has added up to more than $10 billion in value starting around 2000. Generally, a gaining company raises its price per share until shareholders and board individuals from the targeted company are fulfilled. It is particularly difficult to purchase a large company that would rather not be sold. Mylan, a global leader in generic medications, encountered this when it fruitlessly endeavored to purchase Perrigo, the world's largest producer of pharmacy brand products, for $26 billion of every 2015.

Minor departure from the White Knight

Notwithstanding white knights and black knights, there is a third potential takeover candidate called a gray knight. A gray/gray knight isn't so attractive as a white knight, yet it is more attractive than a black knight. The gray knight is the third expected bidder in a hostile takeover who outbids the white knight. Albeit more amicable than a black knight, the gray knight actually looks to serve its own interests. Like the white knight, a white squire is an individual or company that main activities a minority stake to helper a striving company. This assistant gives the company sufficient capital to advance its situation while permitting the current owners to keep up with control. A yellow knight is a company that was planning a hostile takeover endeavor, yet retreats from it and on second thought proposes a merger of equals with the target company.

Features

• A white knight is a hostile takeover defense by which a friendly company purchases the target company rather than the unfriendly bidder.
• While the target company actually loses its independence, the white knight investor is in any case better to shareholders and management.
• A white knight is just one of several strategies that a company can utilize to try to deflect a hostile takeover.