White Knight in Finance

What is a White Knight in Finance?

In finance, a white knight refers to a situation where a friendly investor or company acquires a target company that is facing a hostile takeover attempt. The term white knight is used to imply that a protector or savior is coming to rescue the company. It is seen as a preferable alternative to the hostile bidder because they are more likely to preserve the company’s existing management, culture, and strategic direction.

How a White Knight Works

A White Knight is a friendly investor or company that acquires a target company to save it from a hostile takeover by an unfriendly bidder (often called a “Black Knight”). A white knight can also step in if there is a risk of bankruptcy or other financial distress.

The White Knight generally offers better terms, such as keeping current management or preserving the company’s strategic direction, making it a more favorable option for the target. White knights can be sought out by companies facing a threat or they can present themselves by making an offer for a company that is more favorable to the existing management and company strategy.

White Knight Vs. Other Knights

White Knight is a friendly acquirer who rescues a company from a hostile takeover or financial distress. There are other types of knights:

Black Knight

A Black Knight is a hostile bidder aiming to take over a company against its will to enhance its own growth prospects and financial returns. Companies facing black knights will do their best to stop the acquisition taking place and may instigate other measures, such as poison pills, to stop it from happening.

Gray Knight

A Gray Knight is a third-party bidder who is more favorable than the Black Knight but still considered less friendly than the White Knight.

Yellow Knight

A Yellow Knight refers to a company that initially attempts a hostile takeover but later proposes a merger instead. This usually follows ongoing management discussions and conversations about the best direction to take the two companies forward together.

What is a Hostile Takeover?

A hostile takeover is a takeover attempt opposed by the target company’s board. It is characterized by minimal negotiations and direct appeals to shareholders, whereas, in the case of a friendly acquisition, the board’s approval is sought.

Opposition can stem from fear of negative consequences, including undervaluing the target’s shares, concerns the acquirer might diminish shareholder value, selling off crucial assets, significant employee layoffs, or cultural misalignment between the companies.

A hostile takeover becomes a battle for corporate control and can result in aggressive actions on the side of the acquirer and defensive measures on the target side.

White Knight and White Squire

Where a white knight buys the entire company to prevent a hostile takeover, a white squire buys a significant minority stake in the company. This minority is enough to block a hostile takeover, but the white squire is not seeking control. This is a less aggressive defense strategy, and the white squire may be given a seat on the board if a significant stake is acquired. Some white squires will exit the company once the hostile threat has passed, although others may stay, particularly if a new growth strategy has been instigated to deter more hostile attempts to take control.

Examples of White Knights

There are several examples of white knights:

Walt Disney Co. acted as a White Knight for Capital Cities/ABC in 1995.

This US$19bn transaction added the top US television network to the Disney portfolio as well as radio stations and newspapers. When the merger was announced, both stocks rallied on the day as investors recognized the synergies that could be created from such a deal. Capital Cities had been facing a hostile takeover from Comcast.

Fiat Buys Chrysler to save it from liquidation

In 2009, Fiat agreed to buy US auto manufacturer Chrysler to save it from liquidation, along with support from the US and Canadian governments. Crysler was facing bankruptcy and had a huge US$5.5bn pension liability. By 2014, the two companies were merged, and Fiat Chrysler began trading on the NYSE.

Berkshire Hathaway has played the White Knight role in several distressed company situations

One of the most notable times that a white knight has stepped in to assist a distressed company was when Warren Buffet, CEO of Berkshire Hathaway, offered US$5bn financial assistance to Goldman Sachs during the 2008 Financial Crisis. Previously, the company had also intervened when razor manufacturer Gillette was facing a hostile bid from a competitor. Buffet’s presence and increased stake holding was enough to deter the bidding and allowed Gillette time to stabilize and review its growth plan. Freddie Mac, Coca-Cola and UK-based supermarket Tesco have all been subject to Berkshire Hathaway buying significant stakes in them to support future growth and fit into their own investment strategy.

The Home Depot acted as a White Knight for GMS Inc

In 2025, The Home Depot’s subsidiary, SRS Distribution, acted as a white knight for GMS Inc, in response to an unsolicited offer from QXO.

Access the free Financial Edge download detailing other recent White Knight and White Squire deals.

Real World Example

GMS Inc. acquisition by The Home Depot

June 2025 saw a competitive acquisition battle between QXO Inc. and The Home Depot for GMS Inc., a leading distributor of specialty building products. QXO Inc. made an unsolicited offer of $95.20 per share, valuing GMS at approximately $5 billion, but GMS ultimately chose The Home Depot’s subsidiary, SRS Distribution, which offered $110 per share, valuing GMS at $5.5 billion.

The decision was influenced by the higher valuation, strategic alignment, and long-term growth potential offered by The Home Depot.

Read more about the acquisition as a real-world white knight case study.

What’s the Difference Between a White Knight and a Poison Pill?

While both white knights and poison pills are defensive strategies, they differ significantly. A poison pill is an internal mechanism used by a company to make itself less attractive or more difficult to acquire. During a hostile takeover attempt, target companies often use defensive tactics like poison pills to avoid specific investors getting control or a significant stake in the company. Whereas a white knight is an external party that steps in to acquire the company on friendly terms. Both aim to protect the company’s interests, but they operate through very different means.

There are several different types of poison pills, with the most common being the flip-in pill.

Flip-In Poison Pills

Flip-in pills allow current shareholders (except the acquirer) to acquire more shares at a discount, diluting the acquirer’s stake. This makes it significantly harder for any hostile acquirer to gain a majority of shares. A poison pill can be designed to kick in if any shareholder acquires more than a certain percentage of the company (e.g. 20%). However, if a poison pill is issued like this, management must ensure it is in proportion to the threat of the hostile bidder.

Flip-Over Poison Pills

Flip-over pills allow shareholders to purchase discounted shares of the newly merged company.

Conclusion

The white knight strategy has proven to be an effective defense mechanism for companies facing hostile takeovers. By aligning with a friendly investor or company, the target firm can preserve its management, culture, and strategic direction, thereby ensuring a more stable and favorable outcome.
The comparison between White Knights and other defensive strategies, such as the Poison Pill, highlights the unique advantages of this approach, particularly in maintaining shareholder value and fostering long-term growth. As companies continue to face the threat of hostile takeovers, the White Knight strategy remains a valuable tool in the arsenal of corporate defense mechanisms.

Additional Resources

Acquisition

Cash vs Stock Acquisition

Investment Banking Course