What is a grey knight investor?

For those in the world of public corporate takeovers, grey knight is likely to be a familiar term. But for those who are unfamiliar with it, we’ve covered what is a grey knight and everything else you need to know related to the term.

What is a grey knight?

During a merger or acquisition, a grey knight is an acquiring company, separate to the first bidder and target company, that outbids a white knight in a takeover attempt.

Generally, grey knights make unsolicited offers for target companies after a white knight has submitted a takeover bid, with the reason for the bid often being purely for financial gain.

Bids from grey knights do tend to be friendlier than hostile takeover attempts backed by black knights, but they are still considered less desirable than white knights.

What is a white knight?

A white knight is a ‘friendly’ potential acquirer who is sought out by a firm that is on the verge of being taken over by an ‘unfriendly’ bidder, generally referred to as the black knight.

Even though the target company does not remain independent, a white knight acquires the target company at fair consideration. In a white knight scenario, it is common for current management to remain in place and for investors to be better compensated for their shares.

If a white knight struggles to get a deal for the target company over the line, a grey knight may swoop in with an unsolicited bid to try and acquire the target company.

What is a black knight?

Black knight is the term used to describe a company that makes an unwelcome, hostile takeover bid.

Typically, the management of the company subject to the hostile takeover bid doesn’t want to sell to the black knight because they feel the black knight company has sinister goals. Therefore, black knights attempt to gain control of the company by bypassing the board of directors.

White knights are a form of defence that target companies use when on the verge of being taken over via a hostile takeover bid from a black knight.

What is a hostile takeover?

A hostile takeover is when an acquiring company attempts to takeover a target company against the wishes of the target company’s management.

Techniques that are employed to force through a hostile takeover include tender offers directly to shareholders, engaging in proxy fights and attempting to buy enough of the target company’s stock from the open market.

What is a yellow knight?

A yellow knight is a company that originally proposed a hostile takeover but has since backed out to propose a merger instead.

There are several reasons why a yellow knight might back out of a hostile takeover, but common reasons include realising the target company is more expensive and/or has better takeover defences than the yellow knight first anticipated.