White Knight

What is a White Knight?

A white knight is a company or an individual that acquires a target company that is close to being taken over by a black knight. A white knight takeover is the preferred option to a hostile takeover by the black knight, as white knights make a friendly acquisition by generally preserving the current management team, offering better acquisition terms, and maintaining the core business operations.

Hostile Takeover

A hostile takeover happens when a company attempts a takeover of another company without the approval of the target’s board of directors. A hostile takeover is usually done through:

1. The acquirer purchasing enough stock shares to gain a controlling interest in the target company.
2. The acquirer persuading existing shareholders to vote out the board of directors and replace them with a new board that is more receptive to the takeover.

White Knight in a Hostile Takeover Situation

A black knight is associated with an acquirer company that is attempting a hostile takeover of a target company. The relationship between the white knight, target company, and black knight is as follows:

1. Company A approaches Company B (target company) with a bid offer to purchase the company.
2. Company B (target company) rejects the bid offer.
3. After its offer is rejected, Company A attempts a hostile takeover of Company B. It is now cast in the role of a black knight.
4. Company C sees that Company B (target company) is undergoing a hostile takeover attempt by Company A.
5. Company C offers to buy Company B by offering better takeover terms and a promise to retain the current management team and preserve the company’s core business. It is now acting as a white knight.

A white knight takeover is the preferred option over a hostile takeover by a black knight.

White Knight and White Squire

A white squire is similar to a white knight. Both terms refer to an investor or company that is helping a company reject a hostile takeover.

The only difference is that a white squire, rather than acquiring the target company, purchases just enough shares of the target company to stop a hostile takeover. A white squire does not intend to take over the company and typically sells their shares after the black knight abandons its takeover attempt.

Example of White Squire

In May of 2016, Gannett Co. made a takeover bid for Tribune Publishing Co. The takeover bid was $12.25 per share in cash, worth about $820 million. The management team of Tribune declined the bid, deciding that the price understated the true value of the company and was not in the best interest of its shareholders.

Despite the rejection of their takeover bid, Gannett said it was committed to pursuing the deal and attempted a proxy fight. Gannett urged shareholders of Tribune to withhold their votes during Tribune’s annual meeting to send a message to the board of Tribune to seriously consider its offer.

In May of 2016, billionaire Patrick Soon-Shiong invested $70.5 million in Tribune. By doing so, he became the company’s second-largest shareholder. The billionaire was deemed a white squire for purchasing a large number of shares to help fend off Gannett Co’s takeover attempt.

Other Resources

Thank you for reading CFI’s explanation of a White Knight. To learn more about mergers and acquisitions, see the following CFI resources:

• Killer Bees
• M&A Considerations and Implications
• Precedent Transaction Analysis
• Comparable Company Analysis
• See all valuation resources
• See all equities resources