White Knight

What is White Knight?

A white knight is an investor who is considered friendly for the company as that person acquires the company with the help of the company’s board of directors or top-level management at a fair consideration so that the company can be protected from the hostile takeover attempt by the other potential buyer or from bankruptcy.

How does it work?

When a company becomes a target for a hostile takeover, then the company needs to be saved by somebody who would help the company grow. At this point, the concept of the white knight comes into existence.

It is an individual or a company that takes over a target company and saves it from a hostile takeover from a black knight (a black knight is an individual or a company that takes over a company by force). By being taken over by a white knight, the company still can’t remain independent. But it’s far better than being taken over by a black knight.


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Examples of White Knights

How can the target company save itself by finding out a white knight?

White Knight

source: moneycontrol.com

Since the year 2000, it was found that whenever there was a hostile takeover; it didn’t amplify the value of the company. The unwilling target company which was taken over by force couldn’t amount to more than $10 billion.

So, we can easily state that no hostile takeover was ever successful. Every company, thus, whenever they become a target for a hostile takeover, they need to make a great effort to find out a white knight.

Otherwise, the near future of the target company would be the following –

  • There would be no independence/autonomy in the company. And as a result, the company will lose its way and they need to adhere to the whims of a black knight.
  • Secondly, the company would lose its vision, its values, and its future.
  • Thirdly, the company wouldn’t be able to create value for its employees, customers, and stakeholders.

For a business, this is the worst scenario. And that’s why it’s important to find someone out who would take over the company in preferred terms (even when there won’t be full autonomy). In a few cases, it also acts as a savior for companies that are going to be bankrupt.

But, every target company doesn’t need such a savior. If the target company is way bigger or one of the largest companies in the industry, they need any knight even when they face a chance of a hostile takeover.

This has been a guide to White Knight, its definition along with practical examples. Here we also discuss how a company can save itself by finding a white knight. You may also learn more from these articles below –