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.

What is the concept of White knight in business?

A white knight is called a savior. In the battlefield, the white knight appears and saves the population from hostility and violence. As we all know, a business is a battle too. And the marketplace is a battlefield.

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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How can the target company save itself by finding out a 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 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 their 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 few cases, a white knight also acts as a savior for companies that are going to be bankrupt.

But, every target company doesn’t need a white knight. 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.

 

Examples of White Knights that save companies from hostile takeover

Let’s have a look at few of them –

• In the year 1953, American Broadcasting Company was nearly bankrupt. At that time, United Paramount Theatres came in rescue for American Broadcasting Company (ABC) and acted as a white knight by buying ABC.
• In the year 1984, Walt Disney Productions faced a hostile bid from Saul Steinberg. Sid Bass and his sons acted as white knights and saved Walt Disney by buying significant portions of the same.
• In the year 1998, Digital Equipment Corporation is in pretty bad shape. At that time, Compaq came to rescue. By merging with Digital Equipment Corporation at that time, Compaq acted as a white knight.
• In 2006, there was ample talk about the merger of Mittal Steel and Arcelor. At that time, Severstal acted as a white knight to Arcelor.
• In the year 2008, JPMorgan Chase acquired Bear Stearns. At that time Bear Stearns was struggling to keep their stock price up. And if JPMorgan Chase would not have acquired them, they would need to file for insolvency. At that time JPMorgan Chase acted as a white knight.

Another type of knight – Grey Knights

Understanding this concept wouldn’t be complete until you get to understand three types of a knight.

We all know by now that white knight acts as a savior and black knight bids for a hostile takeover.

But what we need to understand is there’s another type of knight. We call it a grey knight. Grey Knights are not as good as white knights. And at the same time, they are not as hostile as black knights. If there’s a situation where a company isn’t able to find someone who is a white knight, then they can go for the option of being taken over by the grey knight. At least, it would be a better option than being taken over by a black knight.

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