White Knight

In the corporate world, where mergers and acquisitions are a daily occurrence, a "white knight" can swoop in and save the day. Imagine a damsel in distress (a company) being pursued by an unwanted suitor (a hostile takeover). Enter the white knight, a heroic figure ready to rescue the damsel from her predicament. Sounds like something straight out of a fairy tale, doesn't it? Well, in the world of finance, this scenario plays out more often than you might think.

What is a White Knight?

A white knight is a term used to describe a company or investor that comes to the aid of another company facing a hostile takeover attempt. When Company A tries to acquire Company B against the wishes of Company B's management, a white knight (Company C) may step in and make a more favorable offer to acquire Company B. This effectively rescues Company B from the clutches of the unwanted suitor (Company A).

The white knight's offer is typically more attractive to Company B's management and shareholders, either in terms of the price per share or the proposed strategy and vision for the combined entity. By accepting the white knight's offer, Company B can fend off the hostile takeover attempt while potentially securing a better deal for its stakeholders.

Why Do Companies Need White Knights?

Hostile takeovers can be highly disruptive and often lead to significant changes in management, strategy, and company culture. In some cases, the acquiring company may even break up the target company and sell off its assets piecemeal. For these reasons, the management of the target company usually prefers to find a more compatible suitor – a white knight – to acquire the company on friendlier terms.

Enter the white knight, riding in on a metaphorical white horse to save the day. By offering a more attractive deal, the white knight can effectively block the hostile takeover attempt and provide a more palatable alternative for the target company's stakeholders.

How Do White Knights Work?

The white knight strategy typically involves the following steps:

• Identification of a Hostile Takeover: The target company's management recognizes a hostile takeover attempt by an unwanted suitor.
• Seeking a White Knight: The target company actively seeks out a more favorable acquirer, often referred to as a "white knight."
• Negotiating a Better Deal: The white knight negotiates a more attractive offer for the target company, either in terms of price, strategy, or other considerations.
• Shareholder Approval: The target company's shareholders must approve the white knight's offer, effectively rejecting the hostile takeover bid.
• Successful Acquisition: If approved, the white knight successfully acquires the target company, rescuing it from the hostile takeover attempt.

It's important to note that while white knights can be saviors for companies facing unwanted takeovers, their motives may not always be purely altruistic. White knights may see strategic value in acquiring the target company or simply view it as a lucrative investment opportunity. Regardless of their motivations, their presence in the M&A landscape can provide a welcome alternative for companies seeking to avoid hostile takeovers.

So, the next time you hear about a company being rescued by a white knight, remember the tale of corporate chivalry and the daring knights who ride in to save the day. Just don't expect them to be wearing shining armor or carrying swords – their weapons of choice are more likely to be spreadsheets and legal documents.