A yellow knight is a company that has changed its strategy from a hostile takeover attempt to a merger proposal. This change may occur due to the potential for acquisition success or changes in circumstances. The yellow knight is different from a black knight and a white knight in a takeover attempt.
In the business world, a yellow knight is a term used to describe a company that was once attempting to mount a takeover of another business, but has since changed its strategy and is now trying to interest the interested company in the idea. of a merger. The reference to the knight being yellow in this instance is indicative that the former attacker has determined that a takeover is not possible and now wants to use some other method as a means of establishing a connection with the former target. Part of the popular imagination of the Yellow Knight is a company that has become frightened of the original goal and is now willing to enter into a mutually beneficial relationship.
There are a number of reasons why a company may eventually go from a hostile takeover attempt to becoming a yellow knight. One reason has to do with the potential for acquisition success. Should the company come to the conclusion that the takeover will not happen, either because the target has outgrown the effort or because the attempt will require more resources than initially anticipated, the attacker may decide that the approach is no longer viable. Assuming there are still valid reasons for wanting a relationship with the target company, the approach may shift to one that is more beneficial to all concerned and less likely to stick around.
Another reason for moving to a yellow knight situation involves changes in the circumstances under which the company is attempting the takeover. For example, if revenues begin to decline or the company suffers an unexpected loss due to a natural disaster or political coup, the resources to continue the acquisition attempt may no longer be available. At that point, abandoning the acquisition becomes prudent, while still leaving open the option for a possible merger.
A yellow knight’s designation is different from similar monikers used to describe the companies’ roles in a takeover attempt. For example, a black knight is the business pursuing a hostile takeover, while a white knight is a company that comes to the target company’s rescue and mounts a takeover attempt with the target’s support. While the Yellow Knight is no longer attempting to take over a company, it is not uncommon for some pessimism and suspicion to linger in the new merger negotiations, based on the past hostile takeover attempt.
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