# What Is a White Knight? Definition and Role in Acquisitions

![Business partners shake hands ending a meeting after a company merger.](https://www.investopedia.com/thmb/B3wwOek84lXZNteceMIelawr6VE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhiteKnight-5fbd1547f78542ecb454889550234579.jpg)

*— Wasan Tita / Getty Images*

> **Definition**
>
> A white knight is a friendly investor or company that steps in to acquire a firm targeted for a hostile takeover, providing a favorable alternative to the unwelcome bidder.

## What Is a White Knight?

A white knight is a defense strategy used by a target firm that doesn't want to be acquired in a [hostile takeover](https://www.investopedia.com/terms/h/hostiletakeover.asp). Rather, it seeks out a white knight—a friendly individual or corporation that buys it at fair consideration just before being taken over by the unfriendly bidder. An acquisition by a white knight is preferred to being taken over by a hostile acquirer because the target firm's management generally remains in place and its investors [investors](https://www.investopedia.com/terms/i/investor.asp) receive better compensation for their shares.

### Key Takeaways

*   A white knight is a hostile takeover defense.
*   A friendly company purchases the target company instead of the unfriendly bidder in a white knight situation.
*   While the target company still loses its independence, the white knight investor is more favorable to shareholders and management.
*   A white knight is just one of several strategies that a company can employ to try to avert a hostile takeover.

## How a White Knight Works

[Takeovers](https://www.investopedia.com/terms/t/takeover.asp) can be friendly or uninvited. When the acquiring company tries to assume control of another with the consent of the target's [board of directors](https://www.investopedia.com/articles/analyst/03/111903.asp), the takeover is considered hostile. The acquiring company may use certain strategies to try to gain control. But the target also has a few tricks it can use to prevent a takeover. The white knight strategy is one defense.

Officials from the [target firm](https://www.investopedia.com/terms/t/targetfirm.asp) may seek out a white knight to preserve the company's core business or to negotiate better takeover terms. The strategy is named so because a white knight is commonly seen as a savior. The white knight is a third party that offers to buy the target firm with its approval.

Here's how it works:

*   The target may seek another acquirer to stave off the unfriendly [acquirer](https://www.investopedia.com/terms/a/acquirer.asp), who is typically called the black knight
*   The white knight makes an offer to purchase the target, usually at a premium to the hostile acquirer's bid or with more favorable terms amenable to the target's shareholders, management, and/or board of directors.
*   Once the [acquisition](https://www.investopedia.com/terms/a/acquisition.asp) is complete, the white knight may choose to keep the target's management and/or board rather than replace one or both.

Another key facet of this strategy is that the white knight may also choose to keep the target's business operations as is after the deal goes through.  

> **Fast Fact**
>
> The terms white knight and black knight can find their origin in the adversarial game of chess. While a white knight is considered a savior, a black knight is akin to an adversary.

## Special Considerations

A few of the most hostile takeover situations include:

*   AOL's $162 billion purchase of Time Warner in 2000
*   Sanofi-Aventis' $20.1 billion purchase of [biotech](https://www.investopedia.com/articles/fundamental-analysis/11/primer-on-biotech-sector.asp) company Genzyme in 2010
*   Deutsche Boerse AG's blocked $17 billion [merger](https://www.investopedia.com/terms/m/merger.asp) with [NYSE Euronext](https://www.investopedia.com/terms/e/euronext.asp) in 2011
*   Clorox's rejection of Carl Icahn's $10.2 billion takeover bid in 2011

However, successful hostile takeovers are rare. No takeover of an unwilling target has amounted to more than $10 billion in value since 2000. An acquiring company primarily raises its price per share until [shareholders](https://www.investopedia.com/terms/s/shareholder.asp) and board members of the targeted company are satisfied.

It is especially hard to purchase a large company that does not want to be sold. Mylan, a global leader in [generic drugs](https://www.investopedia.com/terms/g/generic-brand.asp), experienced this when it unsuccessfully attempted to purchase Perrigo, the world's largest producer of drugstore-brand products, for $26 billion in 2015. 

## White Knight vs. Other Knights

In addition to white knights, there are other so-called knights in the business world. The most common ones are:

a black knight is a party that initiates a hostile takeover bid by trying to take control of the target company. The target may try to initiate a line of defense such as a [poison pill](https://www.investopedia.com/terms/p/poisonpill.asp), [golden parachute](https://www.investopedia.com/terms/g/goldenparachute.asp), or [golden handshake](https://www.investopedia.com/terms/g/golden-handshake.asp) to prevent the black knight from completing the acquisition.

*   **Black Knight:** A black knight makes an unsolicited, hostile bid for its target. This entity does whatever it can to complete the transaction—even going over the target's board of directors. The target normally doesn't want to be taken over by the black knight because of its selfish motivations.
*   **Gray Knight:** A [gray knight](https://www.investopedia.com/terms/g/grayknight.asp) is not as desirable as a white knight, but it is more desirable than a black knight. The gray knight is the third potential bidder in a hostile takeover who outbids the white knight. Although friendlier than a black knight, the gray knight still seeks to serve its interests.
*   **Yellow Knight:** A [yellow knight](https://www.investopedia.com/terms/y/yellowknight.asp) is a company that planned a hostile takeover attempt, but backs out of it and instead proposes a merger of equals with the target company.

> **Fast Fact**
>
> Richard Gere's character in the film "Pretty Woman" was considered a black knight. Corporate raider Edward Lews had a change of heart and decided to work with the head of a company he originally planned to ransack.

## White Knight vs. White Squire

Similar to a white knight, a [white squire](https://www.investopedia.com/terms/w/whitesquire.asp). is an investor or friendly company that buys a stake in a target company to prevent a hostile takeover. But unlike the white knight, the target firm does not have to give up its independence because the white squire only buys a partial share of the company rather than a controlling interest.

The white squire's stake is large enough to prevent the acquirer from taking over the target. In exchange for taking this action, the white squire may be offered discounted shares or even a seat on the company's board. Some white squires may sell their stake in the company after the hostile takeover fails and the acquirer backs off.

## Examples of White Knights

Some notable examples of white knight rescues are United Paramount Theaters 1953 acquisition of the nearly bankrupt ABC, Bayer's 2006 white knight rescue of Schering from Merck KGaA, and JPMorgan Chase's 2008 acquisition of Bear Stearns that prevented their complete insolvency.  

## What's the Difference Between a White Knight and Poison Pill?

White knights and poison pills are two defensive strategies that target firms can use to avoid being taken over by an unfriendly acquirer. A white knight involves a friendly investor or company who makes a better offer to purchase the target and prevent the unfriendly bidder from gaining control.

A poison pill, on the other hand, is used by a target by buying back enough outstanding shares to block an acquirer from gaining a majority and, therefore, control.

## What Is a Hostile Takeover?

A hostile takeover is a type of acquisition that occurs when a company tries to gain control over another without the approval of the target's board. The target firm, which doesn't want to be purchased, may do what it can to prevent being acquired. This includes using defensive strategies, such as white knights and poison pills, or rejecting any offers outright. The acquirer, on the other hand, may try to purchase a controlling interest in the company. If unsuccessful, the acquirer may circumvent the target's board and go public with its offer to try to get the word out to investors and force the board to consider its offer.

## What Are Some Defense Strategies Against Hostile Takeovers?

Target firms that face hostile takeovers have different strategies available to them, including the white knight, poison pill, golden parachute, crown jewel, or a pac-man defense.

## The Bottom Line

As the name implies, a white knight defense involves a savior who comes in to save a company from being acquired by an unfriendly bidder. It's just one of many strategies that corporations have at their disposal to prevent them from being the subject of a hostile takeover. Although the white knight strategy doesn't mean the target remains independent, it does ensure that the company is acquired on its terms by a friendly acquirer.

> **Article Sources**
>
> 1.  The New York Times. "[How the AOL-Time Warner Merger Went So Wrong](https://www.nytimes.com/2010/01/11/business/media/11merger.html)."
>     
> 2.  U.S. Securities and Exchange Commission. "[Sanofi-aventis Announces Non-Binding Offer to Acquire Genzyme](https://www.sec.gov/Archives/edgar/data/1121404/000119312510200153/dex991.htm)."
>     
> 3.  Euronext. "[L’accord de fusion entre Deutsche Börse AG et NYSE Euronext donne naissance au plus grand opérateur boursier du monde](https://www.euronext.com/en/about/media/euronext-press-releases/laccord-de-fusion-entre-deutsche-borse-ag-et-nyse-euronext)."
>     
> 4.  The Clorox Company. "[Clorox Confirms Receipt of Unsolicited Conditional Proposal From Carl Icahn](https://investors.thecloroxcompany.com/investors/news-and-events/press-releases/press-release-details/2011/Clorox-Confirms-Receipt-of-Unsolicited-Conditional-Proposal-From-Carl-Icahn/default.aspx)."
>     
> 5.  Perrigo. "[Perrigo Shareholders Convincingly Reject Mylan's Tender Offer, Expressing Confidence in Perrigo's Long-Term Strategy](https://investor.perrigo.com/2015-11-13-Perrigo-Shareholders-Convincingly-Reject-Mylans-Tender-Offer-Expressing-Confidence-in-Perrigos-Long-Term-Strategy)."