A White Knight refers to a friendly acquirer sought by a company (the target) to rescue it from the control of an unfriendly bidder. This strategy is employed to avert an unwanted takeover by an entity termed as a dark knight or hostile bidder.
Detailed Definition and Context
The White Knight strategy is a defensive maneuver used by a target company to block an unfriendly or hostile takeover attempt. Instead of surrendering to a takeover, the target company seeks out a more favorable entity (the white knight) that will offer better terms, provide stability, and possibly retain the existing management structure.
White Knight vs. Shark Repellent
While the White Knight is an alternative strategy to Shark Repellent tactics, they both serve the purpose of defending a company against hostile takeovers. Shark Repellent involves various preemptive measures embedded in a company’s charter to make it less attractive to a hostile bidder, such as poison pills, staggered board elections, and golden parachutes.
Types of White Knight Strategies
Pure White Knight
A Pure White Knight is a more straightforward acquisition where the target company seeks the White Knight’s takeover without making significant changes to corporate governance or offering special consideration to the bidder.
White Squire
A White Squire strategy involves a friendly entity acquiring a significant but non-controlling interest in the target company, enough to block the hostile takeover bid. This allows the target company to remain independent while having support to fend off the hostile bidder.
Example of White Knight Strategy
An illustrative example of a White Knight strategy is when IBM stepped in to acquire Red Hat in 2018. This acquisition was seen as a defensive maneuver to protect Red Hat from potentially hostile takeovers by other technology companies, ensuring its stability under a more favorable and strategic partnership with IBM.
Historical Context and Applicability
The concept of a White Knight became prominent in the 1980s during a surge of hostile takeover attempts. Companies employed this strategic defense to preserve their corporate culture, maintain management stability, and protect shareholder value from perceived predatory bids.
Modern-Day Usage
White Knight strategies continue to be relevant in today’s corporate landscape. They are particularly used in industries where intellectual property, brand stability, and management continuity are critical to long-term success.
Comparisons and Related Terms
- Hostile Takeover: An acquisition attempt opposed by the target company’s management and board.
- Shark Repellent: Preemptive defensive measures to deter hostile takeovers.
- Poison Pill: A strategy where existing shareholders get the right to buy more shares at a discount if a single investor acquires a specified amount of the company’s shares, diluting the potential hostile acquirer’s holding.
- Golden Parachute: Lucrative benefits given to top executives if the company is taken over and they lose their job in the process.
FAQs
What is a White Knight in corporate takeovers?
How does a White Knight differ from a White Squire?
Why do companies use White Knight strategies?
What is the relationship between White Knight strategies and Shark Repellent tactics?
References
- Williamson, Oliver E. “Corporate Control and Business Behavior.” Prentice-Hall, 1970.
- Gaughan, Patrick A. “Mergers, Acquisitions, and Corporate Restructurings.” Wiley Finance, 4th Edition, 2007.
- Weston, J. Fred, et al. “Takeovers, Restructuring, and Corporate Governance.” Pearson Education, 4th Edition, 2004.
Summary
The White Knight strategy is a critical defensive maneuver in the complex world of corporate acquisitions. It provides an essential lifeline to companies facing unwanted takeovers by offering a more favorable and stable alternative. Understanding its dynamics, applicability, and historical context helps companies navigate through hostile acquisition waters, ensuring better outcomes for their stakeholders.
