A black knight is a corporate raider who attempts a hostile takeover of another company by identifying viable targets, acquiring shares, and gaining controlling interest. Success depends on spending fewer resources than can be realized in profits.
A black knight is a common reference to a corporate raider or a company that engages in the process of attempting a hostile takeover of another business entity. Whether it’s an individual who is backed by a number of investors or a company that makes a profit by buying companies and selling assets, the black knight tends to follow a consistent pattern.
At the beginning of the process, the black knight will look for a number of companies and their current financial status. The purpose of the research is to identify target companies that have enough assets, ownership, market share and other equity interests to make the acquisition worthwhile. Once a viable target company has been identified, the corporate raider will begin acquiring shares of the company’s outstanding stock. Along the way, it will be necessary for the Black Knight to declare his intentions to acquire controlling stakes in the company.
Often, a company will resist a hostile takeover offer. Depending on the amount of resources available and the desire of the other shareholders to prevent the takeover, it is possible to minimize the black knight’s efforts and even convince the raider to sell the acquired shares to other investors. More often, however, the black knight is able to capitalize on shareholder splits and slowly gain a controlling interest in the company. Once control is established, little effort is typically required to convince the remaining shareholders to proceed with dismantling the company and selling all assets.
The key to a black knight’s success is to ensure that he never spends more resources in the acquisition process than can be realized in the form of profits from the sale of all assets. Covering all expenses and putting in a little extra for the effort allows the Black Knight to begin the process of identifying another company that is ripe for a takeover attempt.
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