A White Squire is a friendly company chosen by management during a hostile takeover to take a sufficient stake in the firm so as to block the potential takeover. This is similar to a White Knight, but does not enact a full takeover of the target. The reference is a modification of that term. Both terms have the same objective, in that they wish to deny the Black Knight (the hostile bidder) the ability to takeover the target firm. Whereas a White Knight is a preferred acquirer, the White Squire plays a defensive role.
The White Squire Process
In mergers & acquisitions, a white squire and a white knight are often used terms and have similar characteristics. Both terms refer to a third party “friendly” investor or firm that is helping a company in its defense of a hostile takeover approach. The difference however is that a white squire does not intend to purchase the target firm. Instead, the squire enters the stock market and purchases stock in the target company. However, occasionally stock purchases or loans may be accomplished by alternative means. When a sufficient position has been accumulated, the squire is able to help prevent the hostile takeover by using the new ownership power accordingly. A firm may choose to offer this assistance to help maintain existing business relationships and possibly for financial gain as well. Once the black knight abandons its takeover attempt, following a successful defense, the white squire will look to sells their holding in the target firm usually on the open (secondary) market.
In order for the target to obtain help from the White Squire, the correct incentives must be offered. These often include a mixture of
- A seat on the board of directors
- Maintain existing business relationships
- Potential for financial gain
- Favorable purchase price of target stock
- Dividends (new class of stock or preferred stock)
However, before purchasing target stock, agreements have to be put in place specifying what is expected of the White Squire. These may include
- How to vote with the target company
- How to dispose of their holding in the target
- A standstill agreement
These measures are done to ensure the white squire behaves and assists the target firm as expected without changing its mind. Without these measures in place, it is possible that further down the road a White Squire can hurt the company. Either once they have partial control, via a stock holding or via board representation, they themselves become a potential threat. Hence the standstill agreement preventing an increase in their stake in the company.
An Example
Patrick Soon-Shiong became a White Squire when he invested in Tribune Publishing in 2016. By making a $70.5 million investment in the firm Mr. Soon-Shiong became Tribune’s second-largest shareholder and allowed Tribune to fend off and avoid the hostile takeover bid from Gannett.
Disney and CBS have also famously used the white squires tactic to help avoid unwanted takeovers. CBS arranged for Loews to take a 25% stake in the company preventing a takeover by Ted Turner. This relationship however ultimately turned sour as Loews was not happy with CBS management and pressured the CBS chairman of the board to resign.
