Sometimes, when a company is in deep trouble, various things might happen – hostile takeovers, premium raids, knights in shining armor coming in to save you, you name it, it could potentially happen. Now, there are 4 knights in the game: white, black, gray and yellow. Let’s go through them from the most familiar, to the least familiar one, so that we get a feel of the financial round table of knights.
A white knight is an individual or corporation that acquires a corporation on the verge of a hostile takeover (which means the management has to kiss goodbye to their salaries). While the target company doesn’t remain independent, a white knight is viewed as a preferred option to the hostile company completing their takeover. Unlike a hostile takeover, current management typically remains in place in a white knight scenario, and investors receive better compensation for their shares. White knights are known for turning around such companies after taking over the company. A prominent example of this was Deutsche Borse AG, which blocked $17 billion merger with NYSE Euronext in 2011 and Clorox’s rejection of Carl Icahn’s $11.7 billion takeover bid in 2011.
A black knight is an individual or corporation that initiates the hostile takeover. This can happen via a tender offer, a proxy fight or by purchasing shares on the open market. Well known hostile takeover deals, though uncommon to go through, include AOL’s $164 billion purchase of Time Warner in 2000 and Sanofi-Aventis’ $24.5 billion purchase of biotech company Genzyme in 2010.
A gray knight, as the color of his armor suggests, is in between a white knight and a black knight. In order of preference would be white knights, gray knights and lastly black knights. These are groups that take advantage of any failed mergers and acquisitions from the first bidder (usually a black knight) to get good terms for themselves. Think of them as vultures circling around for dying prey. However, gray knights may not reveal their true intentions until after the merger and acquisition is completed.
Now, what about a yellow knight? A black knight changes his armor to one of a yellow knight when he realizes that they are unable to battle it out with a white knight and/or a gray knight. As the old saying goes, if you can’t beat them, join them. And that is exactly what they did. Under such circumstances, a change in tactics is required as the black knight turned yellow knight might have underestimated the target’s acquisition cost or takeover defenses. This might leave the yellow knight in a weak bargaining position, but a friendly merger might still yield results if there is a real financial rationale for the merger.
The world of business is indeed more complicated than black and white. It’s so much more colorful…
Source of Information: Investopedia
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