A white knight is a friendly savior in the business world who helps a company by purchasing it when it is either in the midst of an attempted hostile takeover, or when the business is either near bankruptcy or bankrupt due to unpaid debts. The term needs to be contrasted with black knight: a person, group or corporation that initiates a hostile takeover. Another related term is gray knight: a person, group or corporation that initiates a takeover, which is not what the business in trouble wants, but is perceived as a better alternative than being taken over by a black knight. The gray knight might take over the company with some concessions to retaining employees or staff, while the black knight ruthlessly replaces staff and management with its own people from its own corporation. A white knight, conversely, generally will try to maintain the same employees but funnel money into the company to help restore it.
As mentioned, the white knight can be a single person. Alternately, the white knight may be a group of investors, or a different company, all intent on either saving the business from bankruptcy, helping a company after bankruptcy, or preventing a hostile takeover. The related term white squire is used to describe people who purchase a minority interest in a company. They don’t take over companies, but their interest may give them enough voting power, combined with other shareholders to prevent a hostile takeover.
The goal of the white knight is not entirely altruistic. Such knights may perceive profitability in acquiring or merging with a company. Few people spend millions or even billions of dollars simply to save a business without thought to the personal or corporate benefits they may reap. For instance, when United Paramount Theaters (UPT) purchased ABC in 1953, they acted as a white knight because ABC was nearly bankrupt. Yet they weren’t simply acting for ABC’s sake, they were hoping to acquire a company they could turn around to produce greater profits. The money UPT funneled into the network did ultimately produce a network that could fully compete with the more popular TV networks CBS and NBC.
A more recent white knight example is Bank of America’s 2008 acquisition of Countrywide Financial, a mortgage company. Initially the risk of acquiring of the company is high, due to the significant fall in new mortgages and the subprime mortgage crisis. However, when the housing market turns, Bank of America has eliminated a competitor, which could prove greatly profitable.
Like any knight of old, the white knight acquires a company with money problems at some considerable hazard to self, investors or company. For Bank of America, acquiring Countrywide financial meant acquiring debt of about $100 billion US Dollars (USD), mostly in the form of mortgages. Bank of America is betting on its own financial strength, a way out of the subprime crisis provided by the government, and a future of being able to offer loans to more people when the housing market begins to scale upward.