Key Takeaways
- Friendly investor buys minority stake to block takeover.
- Does not seek control; preserves target's independence.
- Counters hostile bidders by reducing available shares.
- Risks include potential future alliance with hostile bidder.
What is White Squire?
A white squire is a friendly investor who acquires a significant minority stake in a target company to block a hostile takeover attempt by a "black knight," allowing the target to maintain its independence.
This strategy contrasts with a white knight, who purchases a controlling interest, as the white squire only seeks enough shares to dilute the hostile bidder's influence without taking control.
Key Characteristics
White squires play a specific role in corporate defense with distinct features:
- Non-controlling stake: They acquire a minority share, enough to prevent a takeover but not to control the company.
- Defensive purpose: Their investment blocks hostile bids, similar to other tactics like the pac-man defense.
- Incentives: White squires may receive perks such as discounted shares or board representation.
- Contractual protections: Agreements often prevent the white squire from selling shares to the hostile bidder.
- Independence preserved: Unlike a white knight, the target company remains under existing management control.
How It Works
When a hostile acquirer launches a tender offer to gain control, the white squire steps in by purchasing a sizable minority stake. This reduces the available shares the black knight can acquire, effectively blocking the takeover bid.
This intervention buys time for the target company to explore alternative strategies or strengthen defenses, such as issuing new shares or negotiating with other investors. It differs from more aggressive defenses like the kamikaze defense, which involve more drastic measures.
Examples and Use Cases
White squire investments are common in industries vulnerable to hostile takeovers, including financial services and banking.
- Banking sector: Major institutions like Bank of America and JPMorgan Chase have been involved in complex takeover scenarios where friendly investors played defensive roles.
- Technology firms: Companies structured as a C corporation may also utilize white squires to maintain independence.
- Corporate allies: Investors with tag-along rights can sometimes act as white squires by supporting management during hostile bids.
Important Considerations
While white squires provide a strategic defense, relying on them carries risks. If the white squire becomes dissatisfied, they might align with the hostile bidder, potentially enabling the takeover. Therefore, selecting trustworthy and aligned investors is critical.
Understanding how white squires fit alongside other defenses like the pac-man defense is essential for comprehensive takeover protection. Engaging with experienced entities such as Citigroup can help you navigate these complex scenarios effectively.
Final Words
A white squire provides a strategic yet non-controlling defense against hostile takeovers, preserving company independence while blocking unwanted bidders. If your company faces such threats, consider identifying credible white squire candidates to strengthen your defense and maintain control.
Frequently Asked Questions
A white squire is a friendly investor who buys a significant but non-controlling minority stake in a company to block a hostile takeover, helping the target company maintain its independence.
Unlike a white knight, who acquires a controlling stake and often takes over the company, a white squire only buys a minority interest, allowing the target company to stay independent while preventing a hostile takeover.
Companies bring in white squires to buy enough shares to dilute the available stock, making it harder for hostile bidders to gain control and giving the target more time to plan defenses or find alternatives.
White squires may get benefits like discounted shares, seats on the board, dividends, or opportunities to sell their stake in the future once the takeover threat has passed.
Yes, there's a risk the white squire could later side with the hostile bidder if unhappy with management, so companies often choose reliable investors like established institutions to minimize this risk.
In 2013, Dutch telecom KPN faced a hostile bid from America Movil; by involving white squires such as David Martinez's group, KPN blocked the takeover, preserving its independence.
Contracts with white squires often include clauses that prevent them from selling their shares to the hostile acquirer, reducing the chance of defection and strengthening the target company's defense.
