Definition: White Knight§
In the realm of corporate finance, a white knight is an individual or firm that steps in with a friendly offer to acquire a targeted company facing a hostile takeover bid from another entity. The white knight’s bid often comes with more favorable terms and is welcomed by the target company, contrasting with the bid from a black knight, which is unreceptive and potentially detrimental to the company’s future.
A white knight intervention can provide strategic and operational benefits to the target company, ensuring stability and possibly aligning better with the target company’s long-term goals.
Examples§
- Example 1: Assume Company A receives a hostile bid from Company B, which the board believes undervalues the company and threatens its operational stability. Company A then seeks out Company C, a reputable firm with a history of strategic acquisitions. Company C makes a more attractive offer, and the management and shareholders of Company A accept, thwarting the hostile attempt by Company B. Company C serves as the white knight in this scenario.
- Example 2: In 2006, Merritt Properties was facing an unsolicited takeover bid from its competitor, Howard Industries. To avoid this hostile takeover, Merritt sought a white knight in the form of J&H Investments, which stepped in with a better proposal, ultimately securing the supportive vote from Merritt’s board and shareholders.
Frequently Asked Questions (FAQs)§
What distinguishes a white knight from a black knight?§
A white knight offers a welcomed bid with favorable terms, while a black knight makes an unwelcome bid that the target company sees as threatening or undesirable.
What is the role of a grey knight in takeover bids?§
A grey knight is an entity whose intentions are unclear; their takeover bid might initially be friendly but could turn hostile if negotiations become contentious or if the deal’s terms evolve unfavorably for the target company.
Can a white knight turn into a black knight?§
Though rare, there have been cases where a white knight initially presents favorable terms but later changes the conditions post-takeover, leading to perceptions paralleling those of a black knight.
How does a company attract a white knight?§
To attract a white knight, the target company might publicly announce its rejection of the hostile bid and seek out industry players or investors with a keen interest in aligning with the company’s strategic direction.
Are white knights always successful in taking over?§
Not necessarily. Regulatory approvals, shareholder agreement, and financing can impact the success of a white knight’s bid, much like any other type of takeover bid.
Related Terms§
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Black Knight: A black knight is an entity that makes an unsolicited, hostile takeover bid to acquire a company, often on terms that are viewed unfavorably by the target company’s board and management.
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Grey Knight: A grey knight is a potential acquirer whose intentions are ambiguous and whose bid might shift from being friendly to hostile based on how negotiations unfold.
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Hostile Takeover: A hostile takeover occurs when an acquiring company attempts to take control of a target company against the wishes of the target company’s board and subsequently bypasses them to appeal directly to the shareholders.
Online References§
Suggested Books for Further Studies§
- “Mergers & Acquisitions For Dummies” by Bill Snow
- “The Art of M&A, Fifth Edition: A Merger Acquisition Buyout Guide” by Alexandra Reed Lajoux
- “Investment Valuation: Tools and Techniques for Determining the Value of Any Asset” by Aswath Damodaran
Accounting Basics: White Knight Fundamentals Quiz§
Thank you for exploring the concept of white knights in corporate finance through this comprehensive guide and quiz! Keep enhancing your financial acumen for greater success in the dynamic world of mergers and acquisitions.
