Reviewed by Oct 05, 2020| Updated on
A white knight is a hostile defence to the takeover attempt by a 'friendly' individual or company. Such takeover involves acquiring a company at fair consideration when it is going to be taken over by an 'unfriendly' bidder or acquirer, known as the black knight.
If the target company does not stay independent, white knight acquisition is still preferred to a hostile takeover. Current management, unlike a hostile takeover, typically remains in place in a white knight scenario and investors get better compensation for their shares.
The white knight is the protector of a company that is under hostile takeover. Often, officials at the company are looking for a white knight to preserve the core business of the company or to negotiate better terms for takeover.
Some famous examples of white knight rescues are the purchase of the nearly bankrupt ABC by United Paramount Theaters in 1953, and the white knight rescue of Schering from Merck KGaA by Bayer in 2006. Further, the purchase of Bear Stearns by JPMorgan Chase in 2008 helped in avoiding their complete insolvency.
In India, when a Reliance Industries Ltd (RIL) arm acquired a 14.12 per cent stake in the EIH Ltd hotelier, Mukesh Ambani gave it a new avatar. Like a white knight, Mr Ambani helped the owner of the EIH Prithvi Raj Oberoi counter a possible ITC Ltd bid.
Some of the most aggressive takeover cases include Time Warner's $162 billion acquisition by AOL in 2000, Genzyme's $20.1 billion acquisition by Sanofi-Aventis in 2010, the merger of Deutsche Boerse AG's $17 billion with NYSE Euronext in 2011, and Clorox's rejection of Carl Icahn's $10.2 billion takeover offer in 2011.
However, successful hostile takeovers are rare. Since the year 2000, no takeover of an unwilling target has amounted to a value of more than $10 billion. Mostly, an acquiring firm raises its price per share until the targeted company's shareholders and board members are satisfied with it. It is particularly difficult to buy a big company that doesn't want to be sold.
Besides white knights and black knights, there is a third potential candidate for a takeover, called a grey knight. A grey knight is not as desirable as a white knight, but better in comparison to the black knight. The grey knight is the third bidder opportunity in a hostile takeover that outbids the white knight.