What Is a White Knight?

What Is a White Knight?

Let me explain what a white knight really is in the world of corporate takeovers. If you're running a company that's under threat from a hostile bidder, a white knight is that friendly investor or firm that steps in to buy you out on terms that actually make sense. It's a defense move to avoid getting swallowed by someone you don't want, and it usually means your management team stays put while shareholders get a fair deal—better than what the aggressor is offering.

Key Takeaways

You should know that a white knight acts as a shield against hostile takeovers. Here, a friendly company buys the target instead of the unwanted bidder. Even though the target loses its independence, this option is better for shareholders and management. Remember, it's one of many strategies to fend off such threats.

How a White Knight Works

Takeovers come in friendly or hostile forms. When someone tries to grab control without your board's approval, that's hostile, and they might use aggressive tactics. But you, as the target, can fight back, and the white knight is a solid defense. Your team might hunt for this savior to protect the core business or get better terms. The name fits because it's like a rescuer in shining armor.

Here's the process: You look for another buyer to block the black knight—that's the hostile one. The white knight offers to buy you, often at a premium or with terms that suit your shareholders, management, or board. After the deal, they might keep your team and operations intact.

Special Considerations

Hostile takeovers can get ugly, like AOL's massive buy of Time Warner in 2000 or Sanofi-Aventis grabbing Genzyme in 2010. But big successful ones over unwilling targets are rare—none over $10 billion since 2000. Acquirers often just hike the price until everyone agrees. It's tough to force a large company that resists, as seen when Mylan failed to take Perrigo for $26 billion in 2015.

White Knight vs. Other Knights

Beyond white knights, there are others in this game. A black knight launches the hostile bid and pushes hard, even bypassing the board, driven by self-interest. A gray knight jumps in as a third bidder, outbidding the white knight but still better than the black one, though self-serving. A yellow knight starts hostile but backs off and suggests a merger instead.

White Knight vs. White Squire

A white squire is similar but different—you get an investor buying a stake to block the takeover without taking full control. This lets you stay independent, as they only grab enough shares to stop the aggressor. In return, they might get discounts or a board seat, and some sell out after the threat passes.

Examples of White Knights

Real-world cases show this in action: United Paramount Theaters bought nearly bankrupt ABC in 1953, Bayer rescued Schering from Merck KGaA in 2006, and JPMorgan Chase saved Bear Stearns from insolvency in 2008.

What's the Difference Between a White Knight and Poison Pill?

Both are defenses against hostiles. With a white knight, a friendly buyer steps in with a better offer to take control. A poison pill, though, involves the target buying back shares to prevent the acquirer from getting a majority.

What Is a Hostile Takeover?

This is when a company tries to seize control without the target's board okay. You, as the target, can resist with strategies like white knights or poison pills, or just reject offers. The acquirer might buy up shares or go public to pressure the board.

What Are Some Defense Strategies Against Hostile Takeovers?

You have options like white knight, poison pill, golden parachute, crown jewel, or pac-man defense to protect your company.

The Bottom Line

A white knight is your savior from an unfriendly takeover—it's a strategy to get acquired on your terms by someone friendly. You don't stay independent, but it's better than the alternative.