White Knight

A white knight is a hostile takeover defense in business whereby a ‘friendly’ person or business that acquires a company with appropriate consideration is on the verge of being taken over by an ‘unfriendly’ bidder or acquirer, known as the black knight. White knights are favored by the directorate (when chiefs are acting in compliance with common decency concerning the premium of the enterprise and its investors) or potentially the executives as a rule as they don’t supplant the current board or the executives with another board, though, as a rule, a dark knight will try to supplant the current governing body as well as the board with its new board intelligent of its net revenue in the company’s value.

In other words, a white knight means any business or individual gaining the company at the end of being taken over by the undesired forces, also referred to as black knights. Although the target company does not stay independent, the hostile takeover is still preferred to the acquisition by a white knight. In contrast to a hostile takeover, the current administration ordinarily stays set up in a white knight situation, and speculators get better remuneration for their offers. A hostile takeover happens when an organization endeavors a takeover of another organization without the endorsement of the board of directorate. A hostile takeover is typically done through:

  • To obtain a controlling interest in the target company, the acquirer buys sufficient stock shares.
  • The acquirer persuades existing shareholders to vote out and replace the board of directors with a new board that is more open to the acquisition.

(Example of White Knight)

In a hostile takeover attempt by another corporation, the white knight actually refers to the friendly acquirer of a target firm. It is the savior of a corporation that is subject to a hostile takeover. Often, company officials pursue a white knight to protect the core business of the company or to secure better terms of the acquisition. By offering a higher and more tempting bid, the knight may defeat the unwanted individual, or make a favorable deal with the management of the acquisition item.

The white knight may offer a higher offer than the dark knight or break a great arrangement with the administration of the getting organization. It likewise alludes to the acquirer of a striving firm that may not really be under danger by an antagonistic firm. The money related remaining of the striving firm could forestall some other element being keen on securing. A black knight is synonymous with an acquirer who is seeking to take over a target company hostilely. The relation between the white knight, the target company, and the black knight is as follows:

  • Company A approaches Company B (target business) with an offer to buy the business.
  • Company B (target company) rejects the bid-offer.
  • Company A attempts a hostile takeover of Company B after its bid is refused. It is now cast in the role of a black knight.
  • Company C sees Company B (target company) undergoing a hostile Company A takeover attempt.
  • Company C attempts to buy Company B by providing better terms of purchase and a commitment to maintain the existing management team and retain the core business of the company. He is behaving like a white knight now.

Often, for the company, the white knight acts as an angel who allows the business to resolve its debt burden, which does not face the danger of a hostile takeover. This is done, in the long term, to help the failing business thrive. Similar to a white knight, a white squire is. Both words apply to an investor or corporation that is assisting a business to reject a hostile takeover. In such a case, the knight, under gigantic danger, gains the firm in an emergency. After the procurement, the knight at that point revamps or coordinates the firm. The main distinction is that a white assistant, as opposed to obtaining the objective organization, buys barely enough portions of the objective organization to stop a hostile takeover. It is not the purpose of a white squire but rather acts as a figurehead in support of a hostile takeover. For their equity share, the white squire can also get special voting privileges.

A variety of variants of the term have been used, including: a gray knight who is an acquiring company or entity who, in addition to the target firm and first bidder, joins an offer for an enemy acquisition, viewed as more favorable than the black knight (unfriendly bidder), but less favorable than the white knight (friendly bidder). A person or a corporation that is equivalent to the white knight, but does not plan to have a majority stake in the target business.

 

Information Sources:

  1. businessjargons.com
  2. investopedia.com
  3. corporatefinanceinstitute.com
  4. wikipedia