Definition
A White Squire is a friendly investor who buys a significant stake in a company to help defend it against a hostile takeover. These investors are less threatening than a ‘white knight’ because they do not seek to gain control over the company. They typically acquire enough shares to block any potential takeover, thus maintaining the company’s existing management structure.
Phonetic
The phonetics of the keyword “White Squire” is: /waɪt skwaɪər/
Key Takeaways
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- A White Squire is an investor or friendly company that buys a stake in a company to help prevent a hostile takeover from another entity. This acts as a safeguard measure to protect the company’s interests and maintain its independence.
- The White Squire gets preferential treatment in terms of dividends, voting rights, or other special agreements, in return for being a loyal shareholder. However, their stake is generally lesser than that of a ‘white knight’ , which typically acquires a controlling interest.
- This strategy gives the existing management more time to deliver on their plans without the distraction or interruption of a hostile takeover. However, it also leads to diminished control of the company’s own affairs because of special rights granted to the White Squire.
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Importance
The term White Squire in business/finance refers to a large minority investor brought in by a company’s management or board to prevent a hostile takeover bid from another firm. This investor purchases a significant stake in the targeted company but not enough to trigger a change of control. The White Squire becomes crucial as it acts as a protective measure, making it harder for the hostile bidder to gain control. Moreover, they often receive favorable terms for their stake, which could include voting rights or seats on the board. Hence, the concept of a White Squire is essential in the field of mergers and acquisitions as it acts as a key strategic defense mechanism against unwelcome bids.
Explanation
The term “White Squire” is often used in the context of hostile takeover attempts in the financial and business sector. The primary purpose of a White Squire is to deter or prevent such hostile takeovers. When a particular company faces the threat of a hostile takeover, a White Squire is typically a friendly party who purchases a large enough stake in the enterprise’s equity to prevent outsider control but not large enough that they themselves have the ability to usurp the existing management. Essentially, they help the embattled company to preserve their independence.By acquiring a significant shareholding in the company, the White Squire dilutes the voting power of the hostile bidder, making it much harder for them to gain the majority interest required for the takeover. Besides blocking unfriendly takeovers, White Squires can provide other benefits as well. They often bring in new capital, industry connections, strategic direction, and sometimes may negotiate certain favorable terms for their investment. Their involvement can often act as a vote of confidence that lifts the perceived value of the company. Hosting a White Squire can therefore not only prevent unwanted changes in a company’s ownership structure but also provide an important support in its growth and development.
Examples
1. Berkshire Hathaway and The Coca Cola Company: The Coca Cola Company found itself in a hostile takeover situation in the late 1980s. To protect it, Warren Buffet’s Berkshire Hathaway stepped in as a “White Squire” , purchasing a significant stake – approximately 7-8% – in Coca Cola, deterring the potential takeover.2. Microsoft and Apple: In 1997, Apple was on the verge of bankruptcy and Microsoft stepped in and invested $150 million in Apple. Microsoft’s investment effectively fending off any potential hostile takeovers efforts, thereby serving as a White Squire.3. Volkswagen and Porsche: In 2005, Porsche started accumulating shares in Volkswagen. However, it wasn’t aiming to hostiley take over Volkswagen but rather wanted to have a strategic stake in it. By the time they stopped, they had more than 30% shares – enough to prevent any takeover of the supermajority – thereby acting as a White Squire.
Frequently Asked Questions(FAQ)
What does White Squire mean in finance and business?
The term ‘White Squire’ refers to an investor or entity that buys a substantial stake in a publicly traded company to prevent a hostile takeover by another party without being interested in gaining the control of the company itself.
What is the role of White Squire in Corporate Finance?
It plays a defensive role, protecting companies from hostile takeovers. The White Squire becomes a friendly party whose substantial stake dilutes the shared ownership, deterring potential hostile bidders.
How is White Squire different from White Knight?
While both serve to ward off hostile takeovers, a White Knight is an investor who intends to buy the company under threat to maintain its current management. On the other hand, a White Squire simply takes enough shares to ward off the takeover, with no intention of complete acquisition.
What are White Squire provisions?
White Squire provisions are certain conditions that the company under threat may agree to with the White Squire, such as granting them special voting rights, in order to solidify the defense against a hostile takeover.
What are the advantages of a White Squire strategy?
It provides companies an effective defense strategy against hostile takeovers without having to cede full control of the company. Additionally, it could bring in substantial investment capital.
Are there any disadvantages associated with White Squire strategy?
Yes, White Squires might have their own agenda that might not align perfectly with the company’s management. Their large shareholding might also influence the company’s decisions and operations.
Related Finance Terms
- Poison Pill: This is a strategy used by companies to discourage hostile takeovers. By adopting a poison pill strategy, a company issues new shares to dilute the value of its stock when a potential acquirer buys a certain amount.
- Shareholder Rights Plan: This is another term for poison pill. It empowers existing shareholders in case a company becomes a target for a hostile takeover. With a shareholder rights plan, current shareholders receive a significant advantage in buying more shares at a discount.
- Hostile Takeover: This happens when one company attempts to acquire another company without the consent of the target company’s board of directors. This is typically done through a tender offer, acquiring shares from the open market or proxy fights.
- Staggered Board: A defensive strategy where a board of directors is split into different classes serving different lengths of terms. This makes it difficult for a hostile bidder to take control of the board.
- Tender offer: This is an offer made directly to shareholders to purchase their shares in a company, commonly as a part of a takeover strategy. It usually offers to buy the shares at a premium to the market price.
