What Is a White Squire? Comprehensive Guide for Investors

A white squire is an investor or friendly company that acquires a stake in a target company to thwart a hostile takeover. Unlike a white knight, which purchases the entire target company, the white squire only buys a partial share, allowing the target firm to maintain its independence.

Key Takeaways

• A white squire invests in a company to prevent a hostile takeover.
• The white squire’s stake is partial, in contrast to a white knight’s full acquisition.
• These partial stakes are substantial enough to block a hostile bidder without granting controlling interest.
• Incentives for a white squire can include discounted shares or significant dividends.

How a White Squire Works

A white squire acts as a strategic ally to a target company by acquiring a significant, but not controlling, interest. This move effectively blocks a hostile takeover attempt. The white squire might receive a seat on the board, discounted shares, or generous dividends as compensation. This partial acquisition allows the target company time to adjust its strategies to counter the hostile bid.

Once the hostile bid is retracted, the white squire usually sells its shares. To prevent the white squire from later supporting the hostile bidder, agreements may include clauses that forbid tendering shares to the non-friendly bidder.

Special Considerations

In addition to financial incentives, white squires may receive other benefits such as board seats to ensure their allegiance with the target company. Agreements may be put in place to ensure the white squire doesn’t raise its stake, thereby mitigating future risks.

Having a white squire can be both a boon and a potential risk since they now hold partial control. Therefore, many companies employ standstill agreements, which legally bind the squire from increasing ownership beyond a specified limit.

Example of a White Squire

Real-World Instance

A notable example occurred in 2013 when America Movil, owned by Mexican billionaire Carlos Slim, attempted to acquire the Dutch telecommunications company KPN. An independent foundation took appropriate measures to block the hostile acquisition.

Historical Precedents

Both Disney and CBS have strategically employed white squires to fend off unwarranted takeovers. CBS once had Loews Corp. acquire a 25% stake to block Ted Turner’s takeover attempt. However, Loews later became dissatisfied with CBS management, leading to leadership changes.

Other acquisition defense strategies include poison pills, greenmail, the Pac-Man defense, staggered boards, and supermajority rules.

Learn more about these alternative corporate takeover defenses and how they compare to the white squire strategy.

Related Terms: white knight, hostile takeover, acquirer, target firm, shareholder rights.

References

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