A white knight swoops in to save the day – Image Credit: Michael Maggs (CC by SA-2.5)
In business, a white knight refers to a particular strategy for preventing hostile takeovers. Specifically, the white knight is a company that acquires a corporation in danger of hostile takeover in order to prevent acquisition by an unfriendly bidder, or black knight. While the acquired corporation does not remain independent, the white knight is preferable; usually a white knight keeps the corporations current management intact, and investors are often better compensated for their shares.
Though white knights are often associated with the corporate raids of the 1980s when successful hostile takeovers were more of an imminent threat, the strategy has been used both before and after that period. Prominent white knights include Paramount’s acquisition of ABC as the latter company neared bankruptcy in 1953, as well as JP Morgan Chase’s acquisition of Bear Sterns during the 2008 financial crisis. There are also gray knights, meaning a company that is not as desirable as a white knight, but more desirable than a black knight. Often gray knights take advantage of breakdowns in negotiation between targeted corporations and would-be white knights.
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