White knight (business)
Encyclopedia
In business
, a white knight, or "friendly investor," may be a corporation
or a person that intends to help another firm. 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).
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 creditor
s, 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.
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
, a white knight, or "friendly investor," may be a corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
or a person that intends to help another firm. 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).
The first type, the white knight, refers to the friendly acquirer of a target firm in a hostile takeover
Takeover
In business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...
attempt by another firm. The intention of the acquisition
Takeover
In business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...
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 creditor
Creditor
A creditor is a party that has a claim to the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property or...
s, 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 Knight's, 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 ABCAmerican Broadcasting CompanyThe American Broadcasting Company is an American commercial broadcasting television network. Created in 1943 from the former NBC Blue radio network, ABC is owned by The Walt Disney Company and is part of Disney-ABC Television Group. Its first broadcast on television was in 1948...
- 1982 - Allied CorporationAlliedSignalAlliedSignal was an aerospace, automotive and engineering company that acquired and merged with Honeywell for $15 billion in 1999, after which the new group adopted the Honeywell name.AlliedSignal was created through a 1985 merger of Allied Corp...
buys Bendix CorporationBendix CorporationThe Bendix Corporation was an American manufacturing and engineering company which during various times in its 60 year existence made brake systems, aeronautical hydraulics, avionics, aircraft and automobile fuel control systems, radios, televisions and computers, and which licensed its name for...
in a situation involving the "Pac-Man defensePac-Man defenseThe Pac-Man defense is a defensive option to stave off a hostile takeover in which a company that is threatened with a hostile takeover "turns the tables" by attempting to acquire its would-be buyer....
". 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 reverseReverse takeoverA reverse takeover or reverse merger is the acquisition of a public company by a private company so that the private company can bypass the lengthy and complex process of going public...
hostile takeover. - 1984 - Chevron CorporationChevron CorporationChevron Corporation is an American multinational energy corporation headquartered in San Ramon, California, United States and active in more than 180 countries. It is engaged in every aspect of the oil, gas, and geothermal energy industries, including exploration and production; refining,...
acquired Gulf OilGulf OilGulf Oil was a major global oil company from the 1900s to the 1980s. The eighth-largest American manufacturing company in 1941 and the ninth-largest in 1979, Gulf Oil was one of the so-called Seven Sisters oil companies...
after Gulf tried being a white knight to CitgoCitgoCITGO Petroleum Corporation is a United States-incorporated, Venezuela-owned refiner, transporter and marketer of transportation fuels, lubricants, petrochemicals and other industrial products. The company is owned by PDV America, Inc., an indirect wholly owned subsidiary of Petróleos de...
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. - 1984 - Sid BassSid BassSid Richardson Bass is an American investor and businessman.-Life:He is a graduate of Yale University and Stanford Business School. His father, Perry Richardson Bass , built an oil fortune with uncle, Sid Richardson . Bass took control of the business in 1968. His investments include oil and gas...
and his sons buying significant interest in Walt Disney ProductionsThe Walt Disney CompanyThe Walt Disney Company is the largest media conglomerate in the world in terms of revenue. Founded on October 16, 1923, by Walt and Roy Disney as the Disney Brothers Cartoon Studio, Walt Disney Productions established itself as a leader in the American animation industry before diversifying into...
as a defense against Saul Steinberg'sSaul Steinberg (business)Saul Steinberg is a former financier, insurance executive, and corporate raider. He started a computer leasing company , which he used in an audacious and successful takeover of the much larger Reliance Insurance Company in 1968...
hostile bid for the company. - 1986 - George SorosGeorge SorosGeorge Soros is a Hungarian-American business magnate, investor, philosopher, and philanthropist. He is the chairman of Soros Fund Management. Soros supports progressive-liberal causes...
's Harken EnergyHarken EnergyHKN, Inc., formerly known as Harken Energy Corporation, is a small American oil and gas production company, with ownership interests in other production companies. The company is headquartered in Southlake, Texas, near Fort Worth. There is a second office near Dallas, in the town of Paris. The...
buying George W. BushGeorge W. BushGeorge Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....
's Spectrum 7Spectrum 7Spectrum 7 was an oil company started by William DeWitt and Mercer Reynolds.In 1984, Spectrum 7 merged with George W. Bush's Arbusto Energy. After the merger, Bush became the Chairman and CEO of Spectrum 7.... - 1998 - CompaqCompaqCompaq Computer Corporation is a personal computer company founded in 1982. Once the largest supplier of personal computing systems in the world, Compaq existed as an independent corporation until 2002, when it was acquired for US$25 billion by Hewlett-Packard....
merging with financially weak DECDigital Equipment CorporationDigital Equipment Corporation was a major American company in the computer industry and a leading vendor of computer systems, software and peripherals from the 1960s to the 1990s... - 2001 - DynegyDynegyDynegy Inc. , based in Houston, Texas, United States, is a large owner and operator of power plants and a player in the natural gas liquids and coal business...
attempts to merge with EnronEnronEnron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...
to cover Enron's massive debts (the merger failed as it became obvious that Enron had been committing fraud, resulting in the Enron scandalEnron scandalThe Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world...
). - 2003 - SAPSAP AGSAP AG is a German software corporation that makes enterprise software to manage business operations and customer relations. Headquartered in Walldorf, Baden-Württemberg, with regional offices around the world, SAP is the market leader in enterprise application software...
was seen by analysts as the most likely to help defeat OracleOracle CorporationOracle Corporation is an American multinational computer technology corporation that specializes in developing and marketing hardware systems and enterprise software products – particularly database management systems...
's hostile bid for PeopleSoftPeopleSoftPeopleSoft, Inc. was a company that provided Human Resource Management Systems , Financial Management Solutions , Supply Chain and customer relationship management software, as well as software solutions for manufacturing, enterprise performance management, and student administration to large...
, but it came to nothing. - 2006 - SeverstalSeverstalOAO Severstal Russian: Северсталь, "Northern Steel") is a Russian company mainly operating in the steel and mining industry, centred in the northern city of Cherepovets. Severstal is listed on the RTS and LSE. As of 2009, it is the largest steel company in Russia according to The Metal Bulletin....
almost acted as a white knight to Arcelor as the merger negotiations were in place between ArcelorArcelorArcelor S.A. was the world's largest steel producer in terms of turnover and the second largest in terms of steel output, with a turnover of €30.2 billion and shipments of 45 million metric tons of steel in 2004...
and Mittal Steel - 2006 - BayerBayerBayer AG is a chemical and pharmaceutical company founded in Barmen , Germany in 1863. It is headquartered in Leverkusen, North Rhine-Westphalia, Germany and well known for its original brand of aspirin.-History:...
acted as a white knight to ScheringScheringSchering AG was a research-centered German pharmaceutical company. It was founded in 1851 by Ernst Christian Friedrich Schering and merged with Bayer's pharma sector in December 2006. The company's headquarters was in Berlin-Wedding, Germany...
as the merger negotiations were in place between ScheringScheringSchering AG was a research-centered German pharmaceutical company. It was founded in 1851 by Ernst Christian Friedrich Schering and merged with Bayer's pharma sector in December 2006. The company's headquarters was in Berlin-Wedding, Germany...
and Merck KGaAMerck KGaAMerck KGaA is a German chemical and pharmaceutical company. Merck, also known as “German Merck” and “Merck Darmstadt”, was founded in Darmstadt, Germany, in 1668, making it the world's oldest operating chemical and pharmaceutical company. The company was privately owned until going public in 1995... - 2007 - Nissin Foods launching a friendly 37bn yen ($314m; £166m) bid for Myojo Foods after US hedge fundHedge fundA hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...
Steel Partners offered 29bn yen to buy the firm. - 2008 - JPMorgan Chase acquired Bear StearnsBear StearnsThe Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...
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 ServicesPNC Financial ServicesPNC Financial Services Group, Inc. is a U.S.-based financial services corporation, with assets of approximately $264.3 billion...
boughtNational City acquisition by PNCThe National City acquisition by PNC was the deal by PNC Financial Services to acquire National City Corp. on October 24, 2008 following National City's untenable loan losses during the subprime mortgage crisis...
National City Corp.National City Corp.National City Corporation was a regional bank holding company based in Cleveland, Ohio, USA, founded in 1845; it was once one of the ten largest banks in America in terms of deposits, mortgages and home equity lines of credit. Subsidiary National City Mortgage is credited for doing the first...
after National City was denied TARP funds in order to stay afloat due to increasing concerns that National City would failBank failureA bank failure occurs when a bank is unable to meet its obligations to its depositors or other creditors because it has become insolvent or too illiquid to meet its liabilities. More specifically, a bank usually fails economically when the market value of its assets declines to a value that is...
due to the subprime mortgage crisisSubprime mortgage crisisThe U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....
.^ - 2009 - FiatFiatFIAT, an acronym for Fabbrica Italiana Automobili Torino , is an Italian automobile manufacturer, engine manufacturer, financial, and industrial group based in Turin in the Italian region of Piedmont. Fiat was founded in 1899 by a group of investors including Giovanni Agnelli...
takes over ChryslerChryslerChrysler Group LLC is a multinational automaker headquartered in Auburn Hills, Michigan, USA. Chrysler was first organized as the Chrysler Corporation in 1925....
, saving the struggling automaker from liquidation.