White Knight
Candlefocus EditorWhen a company is faced with the threat of such an acquisition, the board of directors and management team may look into a variety of options for retaking control and preserving the best possible outcome for shareholders. One of those options is a “White Knight” defense, a strategy in which another friendly company is brought in to make a competing offer that is more favorable to the target company.
The White Knight typically has a better track record, a deeper pocketbook, and a better reputation in the industry; all of which can help to ensure the success of the deal and the preservation of shareholder value. The White Knight often offers certain concessions to the target company that the hostile bidder would not, such as higher compensation packages for employees, retention bonuses, and favorable post-merger business arrangements.
The decision to accept a White Knight offer should not be taken lightly. It is important to recognize that the target company is still losing its independence and the process of selling to a White Knight can be lengthy and involve numerous costs. For this reason, the target company should carefully review the terms and conditions of any White Knight offer, including the rights and obligations of all parties, before agreeing to it. In addition, the target company's board of directors should consult a financial advisor to decide whether the offer is in the best interest of the shareholders.
Ultimately, a White Knight strategy can be a great way to limit the disruption and uncertainty of a hostile takeover and to achieve the best possible outcome for the target company, its shareholders, and its employees. While White Knights can offer better terms than a hostile bidder, the target company must still consider the drawbacks and ensure that the deal is beneficial for them.