White Squires in Finance: Definition, Strategies, and Real-Life Examples

A white squire is an investor or friendly company that acquires a stake in a target company to thwart a hostile takeover attempt. Unlike a white knight, which typically purchases the entire company, a white squire only buys a partial stake. This partial ownership is strategically significant, as it enables the target company to retain its independence while blocking the unwanted acquisition.

A white squire functions as a defensive mechanism against hostile takeovers without necessitating a controlling interest, unlike a white knight. By acquiring a partial stake, the white squire prevents the hostile bidder from gaining full control of the target company. This strategic move buys time for the target company to reassess its options and devise a more robust defense strategy.

Incentives offered to white squires may include discounted shares, generous dividends, or even a seat on the target company’s board. These incentives are designed to align the white squire’s interests with those of the target company and to ensure their continued support throughout the acquisition process.

Once the hostile bidder withdraws its takeover attempt, the white squire typically sells its shares. To prevent future shifts in allegiance, the agreement may include restrictions on tendering shares to any future hostile bidders.

Beyond financial incentives, white squires may receive additional benefits such as representation on the target company’s board. This arrangement serves to solidify the white squire’s allegiance to the target company and reduces the likelihood of any future changes in strategy.

However, inviting a white squire into the fold can also pose risks, as they gain partial control over the company. To mitigate this risk, companies often enforce standstill agreements that limit a white squire’s ability to increase their stake in the target company.

An illustrative example of a white squire defense occurred in 2013 when America Movil, owned by Mexican billionaire Carlos Slim, sought to acquire Dutch telecoms company KPN. An independent foundation entrusted with protecting KPN successfully blocked the takeover attempt using a white squire strategy.

In the past, companies like Disney and CBS have employed white squires to fend off potential takeovers. For instance, CBS enlisted Loews Corp. to acquire a 25% stake in the company to thwart a takeover bid by Ted Turner. However, conflicts arose between Loews and CBS management, leading to internal pressures and board changes.

While white squires are intended to bolster the defenses of target companies, their involvement can lead to unforeseen consequences if their interests diverge from those of the target company.

A white squire acquires only a partial stake in a target company to prevent a hostile takeover, while a white knight typically purchases the entire company.

White squires may receive discounted shares, generous dividends, or a seat on the target company’s board as incentives to support the target company during a takeover attempt.

Yes, inviting a white squire into the company can pose risks as they gain partial control, potentially leading to conflicts of interest or internal pressures.