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Hostile Takeover Defense Strategies: White Knight Defense

Hostile Takeover Defense Strategies: White Knight Defense

   2022-08-11T18:14:04+08:00


Published by BSIC on 4 April 2021

White Knight Defense

The white knight defense is a strategy that involves the acquisition of a target company by a partner company, called a “white knight”, as it is friendly to the target. Typically, the white knight agrees to pay a premium above the acquirer’s offer or agrees to a restructuring supported by the target company’s management. This is generally a strategy of last resort. The target company accepts the fact of being taken over, but can at least opt to be taken over or merged with a friendly company, as opposed to being the victim of a hostile takeover. The company sees the friendly bidder as a strategic partner, one who will likely keep the current management in place and who will provide shareholders with better value.

How does it work?

  1. Company A approaches Company B with a bid offer to purchase the company.

  2. Company B rejects the bid offer.

  3. After its offer is rejected, Company A attempts a hostile takeover of Company B. It is now cast in the role of a black knight.

  4. Company C sees that Company B is undergoing a hostile takeover attempt by Company A.

  5. Company C offers to buy Company B by offering better takeover terms and a promise to retain the current management team and preserve the company’s core business. It is now acting as a white knight.

In 2008, global investment bank Bear Stearns sought a white knight after facing catastrophic losses during the global credit crisis. The company’s market capitalization had declined by 92%, making it a potential target for a takeover and vulnerable to bankruptcy. White knight JPMorgan Chase & Co. agreed to purchase Bear Stearns for $10 a share. While this was a far cry from the $170 a share the company traded for just a year earlier, the offer was up from the $2 a share JPMorgan initially offered shareholders.

Posted from SLPRO Z

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Harvey Yan

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