white knight

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In business, a white knight may be a corporation, a private company, or a person that intends to help another firm..^[1] There are many types of white knights. Alternatively, a grey knight is an acquiring company that enters a bid for a hostile takeover in addition to the target firm and first bidder, perceived as more favorable than the black knight (unfriendly bidder), but less favorable than the white knight (friendly bidder).^[2]

The first type, the white knight, refers to the friendly acquirer of a target firm in a hostile takeover attempt by another firm. The intention of the acquisition is to circumvent the takeover of the object of interest by a third, unfriendly entity, which is perceived to be less favorable. The knight might defeat the undesirable 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 necessarily 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 firm 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 that is in crisis. After acquisition, the knight then rebuilds the firm, or integrates it into itself.

White Squire

A white squire is similar to a white knight, except that 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 also get special voting rights for their equity stake.

Hostile firm's strategies

• The strategy that is usually employed by the Hostile Firm is making an offer more lucrative than the White Knights, 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. Here, the hostile firm 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 launches a takeover offer for the White Knight. This takeover offer is generally a hostile one. The target (firm being bid on) can enter into standstill agreements with the White Knight to prevent it from turning Gray Knight.

Examples of white knights

• 1953 - United Paramount Theaters buys nearly bankrupt ABC
• 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 hostile takeover on fights back by buying up Bendix stock in attempt to create a reverse hostile takeover.
• 1984 - Chevron Corporation acquired Gulf Oil after Gulf tried being a white knight to Citgo in 1982 in order for Citgo to avoid a hostile takeover by T. Boone Pickens. Pickens then turned his attention to Gulf, leading to the Chevron-Gulf deal.
• 1986 - George Soros's Harken Energy buying George W. Bush's Spectrum 7
• 1998 - Compaq merging with financially weak DEC
• 2001 - Dynegy attempts to merge with Enron to cover Enron's massive debts (the merger failed as it became obvious that Enron had been committing fraud, resulting in the Enron scandal.)
• 2003 - SAP was seen by analysts as the most likely to help defeat Oracle's hostile bid for PeopleSoft, however it came to nothing.
• 2006 - Severstal almost acted as a white knight to Arcelor as the merger negotiations 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 Foods 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 insolvency after Bear Stearns stock price suffered a precipitous decline, with its market 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 National City would fail due to the subprime mortgage crisis.

References

1. ^ "Business Glossary - Grey knight" (in English). The Guardian. 12 April 2007. http://www.guardian.co.uk/business/2007/apr/12/businessglossary36. Retrieved 2009-07-29. 
2. ^ "Business Glossary - White knight" (in English). The Guardian. 12 April 2007. http://www.guardian.co.uk/business/2007/apr/12/businessglossary159. Retrieved 2009-07-29. 
3. ^ Cup Noodle white knight ups bid

See also

• Economics
• Takeover
• Microeconomics
• Industrial organization