TLDR:
A white knight is a friendly acquirer who rescues a target company from an unwanted hostile takeover by offering a more attractive acquisition on terms acceptable to the target’s management and board.
White Knight vs. White Squire
A ‘white squire’ is a variation of the white knight defense where a friendly investor takes a significant but non-controlling minority stake in the target company. Unlike a white knight who acquires the whole company, the white squire simply makes the target less attractive or more expensive for the hostile bidder by diluting their potential ownership. White squire arrangements often come with standstill agreements (the squire won’t increase their ownership beyond a set limit) and anti-dilution protections. Warren Buffett’s investments in companies facing hostile takeovers have sometimes served as white squire arrangements.
White Knight Dynamics
White knight situations typically arise when a hostile bidder has launched a tender offer or accumulated a meaningful stake in the target. The target board, opposing the hostile bid, solicits competing bids from preferred acquirers. The white knight may receive concessions in exchange for stepping in: a deal-protection package (break-up fees, no-shop provisions), a higher level of cooperation from the target board, or a more favorable transaction structure. The hostile bidder may respond by raising its offer, walking away, or pursuing alternative tactics.
White Squire and Pac-Man Variants
Related concepts include the “white squire” (a friendly investor that takes a meaningful but non-controlling stake to dilute the hostile bidder’s threat) and the “Pac-Man defense” (where the target turns around and makes a hostile bid for the original bidder). Each defensive maneuver has distinct legal, regulatory, and competitive implications. The board’s choice among these alternatives must satisfy fiduciary duties to shareholders — typically requiring careful documentation of process and rationale.