The cool term "white knight" lends more to a shining vision galloping over the hills, than to the 12th move of the Immortal Game when White's knight protected the pawn which was attacking Black's queen.
In law, the term "white knight" describes a friendly company arriving at the messy scene of a hostile takeover and acquiring the target company. The white knight may slay the hostile bidder with a higher bid or a more favourable deal for the target board's management.
The actions of a white knight may have untoward implications in the Takeover Code, as a white knight and target company may be perceived as parties "acting in concert". Persons are acting in concert where an agreement or understanding exists requiring the parties to actively co-operate with the acquisition of shares that enable oen or both of the parties to obtain control of the target company. Although there is nothing in the Takeover Code to prevent parties acting in concert, it does place limitations on the parties, for example, in the transfer of target company shares (perhaps giving give rise to an obligation to make a mandatory Rule 9 general offer to all shareholders). The Takeover Directive amends the definition of “acting in concert” so that it will not require "active" co-operation between the parties, and it will apply to co-operation outside of simply the transfer of shares, and it will also involve "white squires".
In the UK the term "white squire" describes a party which builds up a stake in the target in order to block any hostile takeover bid. Unlike a white knight, the white squire does not purchase a majority stake, but a lesser stake which is equally effective in warding off the Black Knight (see below).
The leading case concerning "white knights" is Morgan Crucible Co plc v Hill Samuel Bank Ltd and others [1991] 1 All ER 148, which suggests that a white night and hostile bidder may be distinguished in the run-up to a bid. This has implications on the duty of care owed to the white knight by the target. The reasoning is that when a white knight is approached by the target it is merely a member of an indeterminate class, and a lesser duty of care may be owed to it. This view has not come before the courts again since Morgan Crucible, and has therefore not been properly tried, and tested.
Corporate Blawg UK must pay homage to Investopedia, which inspired this posting. Accordingly Corporate Blawg UK sets out a number of other relevant terms:
BLACK KNIGHT: The company that makes a hostile takeover offer on a target company.
GREY KNIGHT: A second, unsolicited bidder which enters the scene in order to take advantage of problems between the first bidder and the target.
YELLOW KNIGHT: A hostile bidder that ends up discussing a merger with the target company.
Corporate Blawg UK has a few of its own suggestions to add to the lingo:
BLUE KNIGHT: A third party intermediary that strictly requires open and fair play between all parties at the table.
GREEN KNIGHT: A company that is the preferred bidder for the target company, due to its social and environmental policies.
RED KNIGHT: A shepherd's delight
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