Definition: The White Knight is any friendly investor or a company that rescues a firm from the prospects of a hostile takeover. In other words, white knight means, any company or an individual that acquires the company standing at the extremity of being taken over by the undesired forces, often called as black knights.
A white knight is a savior of the company who helps in rescuing it from the clutches of a corporate raider. Corporate raider is the individual or a company that has given the hostile bid. The white knights are more preferred by the target firm as in most of the cases the existing board or management is not replaced with a new board of the acquiring firm.
The white knight acquires the target firm with the intent to protect it from the hostile takeover intended by the third party, which deemed to be undesirable by the management. The white knight might offer a higher bid than the black knight or crack a favorable deal with the management of the acquiring company.
Sometimes, the white knight act as an angel for the firm who helps the company to overcome its debt burden, that may not be facing any threat of a hostile takeover. This is done, to help the struggling company survive in the long run.
Often, the third potential takeover candidate enters into the race of an acquisition called as a gray knight. A gray knight is an individual or a company which is less favorable than the white knight, but more desirable than the black knight.
Like, a gray knight there is another potential acquirer called as a white squire. An individual or a company who is similar to the white knight, but has no intention to have a majority stake in the target company. Rather, it acts as a frontman in the defense of a hostile takeover. The white squire might enjoy the minority stake and get special voting rights in the company’s equity stake.