CandleFocus Glossary Editor
The Yellow Knight is a company that initially seeks to take over another company through a hostile takeover attempt, only to then back out and offer a merger instead. Such a course of action is termed Yellow Knighting due to the yellow knight in the classic game of chess being the weakest piece.
Over recent decades, the increasing complexity of industrial markets and the complexity of opposing takeover defenses have made it difficult to successfully execute hostile takeovers. As such, the yellow knight plays an increasingly important role, as investors try to acquire new companies without risking their own commercial reputations.
The first-mover advantage often plays a role in successful takeovers, but the yellow knight's advantage is its ability to retreat non-confrontationally. The company typically begins by carrying out an evaluation of the target firm to gain insight into the potential costs, expectations and partnership possibilities. They then propose a takeover bid and launch a campaign to pressure the target shareholders into accepting it.
The yellow knight quickly discovers that the target firm is more complex and costly than originally assumed, and assesses the feasibility of its hostile takeover plan. Concerns about the company's own commercial reputation, the burden of responsibility and the potential for damage to the target firm begin to emerge, leaving the yellow knight to retreat in search of a new offer.
The idea of a merger with the target quickly becomes the most attractive option. The yellow knight usually approaches the target company with an offer of a merger, allowing both to reap the benefits of an equal joint venture without the risk of a full takeover. Such a deal may increase the value of both companies while allowing them to collaborate amicably rather than compete.
In the end, the yellow knight approach to acquiring a new partner has evolved over the years. Today, it remains a popular alternative to hostile takeovers, which can often be long and costly. While the yellow knight no longer stands to gain a first-mover advantage, it still stands to benefit from a mutual agreement that can bring the companies closer together.
Over recent decades, the increasing complexity of industrial markets and the complexity of opposing takeover defenses have made it difficult to successfully execute hostile takeovers. As such, the yellow knight plays an increasingly important role, as investors try to acquire new companies without risking their own commercial reputations.
The first-mover advantage often plays a role in successful takeovers, but the yellow knight's advantage is its ability to retreat non-confrontationally. The company typically begins by carrying out an evaluation of the target firm to gain insight into the potential costs, expectations and partnership possibilities. They then propose a takeover bid and launch a campaign to pressure the target shareholders into accepting it.
The yellow knight quickly discovers that the target firm is more complex and costly than originally assumed, and assesses the feasibility of its hostile takeover plan. Concerns about the company's own commercial reputation, the burden of responsibility and the potential for damage to the target firm begin to emerge, leaving the yellow knight to retreat in search of a new offer.
The idea of a merger with the target quickly becomes the most attractive option. The yellow knight usually approaches the target company with an offer of a merger, allowing both to reap the benefits of an equal joint venture without the risk of a full takeover. Such a deal may increase the value of both companies while allowing them to collaborate amicably rather than compete.
In the end, the yellow knight approach to acquiring a new partner has evolved over the years. Today, it remains a popular alternative to hostile takeovers, which can often be long and costly. While the yellow knight no longer stands to gain a first-mover advantage, it still stands to benefit from a mutual agreement that can bring the companies closer together.