White knight

The definition of white gentleman is applied in the financial field, to that figure who, in a process of merger and absorption in a hostile way of one company with another, comes to the aid of the injured party. This figure will be an investor who, in turn, may be a person or a company.

In a capitalist world, companies try to maximize profits at all costs to maintain their business structures and to expand, given that the world of mergers and acquisitions, also known in English as mergers and acquisitions (M&A) , is sometimes very aggressive, and goes against the interests of the managers of the absorbed company. There are defense strategies to protect yourself from this attack that has an unfriendly character.

Defense mechanisms

Let’s mention some of the most common defense methods in the face of the hostile strategy of large companies:

  • Limit the power of directorsin writing in the bylaws of the company.
  • Convince shareholdersthat the price offered by the buyer is very low.
  • Buy back shares in the marketto increase the demand and the valuation of the price of the company, so that the buying company increases its purchase offer of the company to be acquired.
  • The  search in the market for a powerful investorthat ensures the position of the company to be acquired.
  • Try to get an  investor who buys a large majority of the outstanding shares, in order to limit the strength of the company that is interested in buying as much as possible.
  • Legal resourcesthat delay the execution of the absorption, lack of legality in the execution and requirements, appeals to the methodology used, delays in the process due to the existence of judicial processes in parallel to the absorption process.
  • Avoid the bear hugof the buying company to the managers of the acquired company.
  • Make a good press and advertising campaign highlighting the good management of the company and comparing results with the company that performs the  hostile takeover .
  • Promise of future dividendsto shareholders by the home company.  
  • The  greenmailthat consists of the payment of an important premium for the actions of a significant shareholder in exchange for the latter not initiating a takeover of the company.
  • Safeguard agreementsbetween companies.

The figure of the white gentleman is very important  since, since there is an investor willing to buy at a higher price (known as the black gentleman ), a psychological effect of contagion can be produced towards the rest of investors or potential investors, pushing the value from upward action. This positive flow, can make the company that wanted to buy at a lower price X, have to buy it at X + Y and therefore, more expensive, impacting on its purchase decision.

Example

We can mention the Spanish example in 1998, Clesa was the target company, Puleva the hostile buyer and the Italian Parmalat the white gentleman; In 24 hours the Clesa management team sold 50% of the company to Parmalat.

Leave a Comment