White knight (business)

In business, a white knight is a friendly investor that acquires a corporation a

t a fair consideration with the support from the corporation's board of director
s and management. This may be during a period while it is facing a hostile acqui
sition from another potential acquirer (black knight) or it is facing bankruptcy
. White knights are preferred by the board of directors (when directors are acti
ng in good faith with regards to the interest of the corporation and its shareho
lders) and/or management as in most cases as they do not replace the current boa
rd or management with a new board, whereas, in most cases, a black knight will s
eek to replace the current board of directors and/or management with its new boa
rd reflective of its net interest in the corporation's equity.[1]
The first type, the white knight, refers to the friendly acquirer of a target fi
rm in a hostile takeover attempt by another firm. The intent of the acquisition
is to circumvent the takeover of the object of interest by a third, unfriendly e
ntity, which is perceived to be less favorable. The knight might defeat the unde
sirable entity by offering a higher and more enticing bid, or strike a favorable
deal with the management of the object of acquisition.
The second type refers to the acquirer of a struggling firm that may not necessa
rily be under threat by a hostile firm. The financial standing of the struggling
firm could prevent any other entity being interested in an acquisition. The fir
m may already have huge debts to pay to its creditors, or worse, may already be
bankrupt. In such a case, the knight, under huge risk, acquires the firm in cris
is. After acquisition, the knight then rebuilds, or integrates the firm.
A number of variations of the term have been used and these include: a grey knig
ht which is an acquiring corporation or individual that enters a bid for a hosti
le takeover in addition to the target firm and first bidder, perceived as more f
avorable than the black knight (unfriendly bidder), but less favorable than the
white knight (friendly bidder).[2] Also, a white squire, which is similar to a w
hite knight except it only exercises a significant minority stake, as opposed to
a majority stake. A white squire doesn't have the intention, but rather serves
as a figurehead in defense of a hostile takeover. The white squire may often als
o get special voting rights for their equity stake.
Contents [hide]
1
Hostile firm's strategies
2
Examples of white knights
3
See also
4
References
Hostile firm's strategies[edit]
The strategy that is usually employed by the Hostile Firm is making an offer mor
e lucrative than the White Knight's, so that the shareholders consider rejecting
the White Knight's bid. This, however, can lead to bidding wars and finally to
overpaying, by one or the other, for the target firm.
Another option is known as the NL strategy.[citation needed] Here, the hostile f
irm allows the white knight to move ahead and waits for the acquisition to take
place. Once things are settled between the two entities, the Hostile Firm launch
es a takeover offer for the White Knight. This takeover offer is generally a hos
tile one. The target (firm being bid on) can enter into standstill agreements[cl
arify] with the White Knight to prevent it from turning Gray Knight.[citation ne
eded]
Examples of white knights[edit]
1953 - United Paramount Theaters buys nearly bankrupt ABC
1980 - Renault buys a controlling stake in American Motors, which saves the stru
ggling American automaker from bankruptcy.
1982 - Allied Corporation buys Bendix Corporation in a situation involving the "
Pac-Man defense". Allied is drafted in when the company that Bendix tries a host
ile takeover on fights back by buying up Bendix stock in attempt to create a rev

erse hostile takeover.

1984 - Chevron Corporation acquired Gulf Oil after Gulf tried being a white knig
ht to Citgo in 1982 in order for Citgo to avoid a hostile takeover by T. Boone P
ickens. Pickens then turned his attention to Gulf, leading to the Chevron-Gulf d
eal.
1984 - Sid Bass and his sons buying significant interest in Walt Disney Producti
ons as a defense against Saul Steinberg's hostile bid for the company.
1986 - George Soros's Harken Energy buying George W. Bush's Spectrum 7
1987 - Kluwer Publishers merged with Wolters Samson as a defensive move against
an attempted hostile takeover of Kluwer by Elsevier.
1998 - Compaq merging with financially weak DEC
2001 - Dynegy attempts to merge with Enron to cover Enron's massive debts (the m
erger failed as it became obvious that Enron had been committing fraud, resultin
g in the Enron scandal).
2003 - SAP was seen by analysts as the most likely to help defeat Oracle's hosti
le bid for PeopleSoft, but it came to nothing.
2006 - Severstal almost acted as a white knight to Arcelor as the merger negotia
tions were in place between Arcelor and Mittal Steel
2006 - Bayer acted as a white knight to Schering as the merger negotiations were
in place between Schering and Merck KGaA
2007 - Nissin Foods launching a friendly 37bn yen ($314m; 166m) bid for Myojo Foo
ds after US hedge fund Steel Partners offered 29bn yen to buy the firm.[3]
2008 - JPMorgan Chase acquired Bear Stearns allowing Bear Stearns to avoid insol
vency after Bear Stearns stock price suffered a precipitous decline, with its ma
rket capitalization dropping by 92%.
2008 - PNC Financial Services bought National City Corp. after National City was
denied TARP funds in order to stay afloat due to increasing concerns that Natio
nal City would fail due to the subprime mortgage crisis.
2009 - Fiat takes over Chrysler, saving the struggling automaker from liquidatio
n.