A white squire is an investor who acquires a minority interest in a company to prevent a hostile takeover attempt and strengthen the position of current owners. They differ from white knights who acquire a majority stake, and oppose black knights who seek to gain control over the objections of current owners. However, there is a risk that a white squire may switch loyalties to the black knight, increasing the potential for a hostile takeover.
A white squire is an investor who takes a partial interest in a company, without owning a majority interest. The acquisition is generally acceptable to the company and may represent a sufficient investment to deter a hostile takeover attempt. Doing so helps to strengthen the position of the current owners, as it is anticipated that the white squire will join those owners against the investor or group of investors who wish to take over the business.
There are some similarities between a white squire and a white knight. Both parties see themselves as allies with the current owners in defeating a takeover attempt. An important distinction has to do with the role each party plays in preventing such acquisition. A white knight will acquire a majority stake in the company, with the blessing of the current owners. Conversely, a white squire will acquire a significant but minority interest in the company, a move that minimizes the number of shares available for purchase on the market.
The white squire opposes the black knight in a takeover attempt. A black knight seeks to gain control of a company over the objections of the current owners, using any legal means possible to achieve that goal. If the white squire owns a significant block of shares and chooses to back the owners who have a majority stake in the business, it is possible to prevent the black knight from earning enough interest to force a takeover. Sometimes this strategy results in changing the black knight into what is known as a yellow knight. The Yellow Knight is an investor who has abandoned the acquisition attempt and now wishes to enter into a merger situation with the current owners.
While the white squire is generally perceived as an ally and asset to those who wish to retain control of a business, there is a degree of risk associated with this strategy. If the squire determines at a later date that he or she is not happy with the current property, there is a chance the squire could switch the owners’ loyalties to the black knight trying to take over the business. When this occurs, the black knight’s potential to succeed in the hostile takeover bid increases significantly. For this reason, owners often evaluate potential squires with great care, making sure that they are most likely to stick with their support.
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