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governance

White Knight

"Status preservation via "better" partner"

When facing a hostile takeover, the target company invites a friendlier acquirer to make a competing bid, often at a lower premium in exchange for better terms for management.

How It Works

  1. 1

    Target faces hostile bid at significant premium

  2. 2

    Board begins process to solicit alternative bids

  3. 3

    Identifies 'friendly' acquirer willing to preserve management, culture, etc.

  4. 4

    White knight makes competing bid (often slightly higher)

  5. 5

    Target board recommends white knight's bid to shareholders

Key Mechanics

Revlon duties require board to get best price in change of control

Break-up fees limit board's ability to favor white knight

No-shop provisions limit but don't prevent competing bids

Go-shop periods allow target to test market

Regulatory Context

Delaware's Revlon v. MacAndrews (1986) established that once sale is inevitable, board's duty shifts to getting best price for shareholders.