White Knight - Explained
What is a White Knight?
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Table of ContentsWhat is a White Knight?What does a White Knight Do? Hostile TakeoversAcademic Research for White Knight
What is a White Knight?
A white knight refers to an individual or a firm that acquires an organization at the time when it is about to be acquired by another aggressive firm, called a black knight. After being acquired by the white knight, the target organization becomes dependent and loses authority. However, this type of acquisition is considered to be far less brutal than that of the black knight. In white knight acquisition, the present management remains intact, and investors get the benefit of being compensated better in the form of dividends.
What does a White Knight Do?
The white knight turns out to be a blessing in disguise for a company who is about to face a hostile takeover. Most of the times, organizations look for a white knights help for retaining the core business of the firm, or for coming up at better negotiation terms during takeover. People who have watched the movie Pretty Woman will understand this concept of white knight better. In the movie, Edward Lewis was the black knight who suddenly became nice, and planned to work with the firms CEO whose business he had decided to takeover before. Many white knights such as Bayer's white knight rescue of Schering from Merck KGaA in 2006, United Paramount Theaters 1953 acquisition of the nearly bankrupt ABC in 1953, and JPMorgan Chase's acquisition of Bear Stearns in 2008 for protecting them from being insolvent.
Many hostile takeovers have taken place in the corporate history. For instance, the acquisition of Time Warner by AOL for $162 million in the year 2000, the hostile purchase of Genzyme by Sanofi-Aventis for $20.1 billion in 2010, the time when Deutsche Boerse AG prevented merger of $17 billion with NYSE Euronext, and the decline of a takeover bid of Carl Icahn worth $10.2 billion by Clorox. Hostile takeovers are rarely successful in reality. The worth of such takeovers has been up to $10 billion since the year 2000. The company that is acquiring, increases its share price to an extent that the shareholders as well as members of the company that is to be acquired, are happy. It gets difficult to buy a huge firm that has no desire of selling itself. Mylan, an international pioneer in generic drugs, went through this phase at the time it tried to acquire the biggest manufacturer of drugs, Perrigo for an amount of $26 billion in the year 2015, and failed miserably. Besides white knight and black night, there is a third category related to takeovers, which is called a gray knight. Gray knight is something that is preferred over black knight, but not a white knight. In a hostile takeover, the gray knight tends to be the third prospective bidder outbidding the white knight. Even though it is less harmless than the black knight, but still, it has its own motives and interests behind the takeover. Just like the white knight, a white squire is a person or a company that uses a minority share for helping the target firm. Its main objective is to offer an adequate amount of capital so as to strengthen its position and helping the present owners to have control.
Academic Research for White Knight
- Wealth reduction in white knight bids, Banerjee, A., & Owers, J. E. (1992). Wealth reduction in white knight bids. Financial Management, 48-57.
- An empirical examination of white knight corporate takeovers: synergy and overbidding, Niden, C. M. (1993). An empirical examination of white knight corporate takeovers: synergy and overbidding. Financial Management, 28-45.
- The performance of white-knight management, Carroll, C., Griffith, J. M., & Rudolph, P. M. (1998). The performance of white-knight management. Financial Management, 46-56.
- Knowledge management: White knight or white elephant?, Malone, S. M. (2001). Knowledge management: White knight or white elephant?. Topics in health information management, 21(3), 33-43.