In Mergers and Acquisitions (M&A), the term “Black Knight” refers to an entity that makes an unsolicited and often hostile bid to take control of a company. Unlike friendly takeovers, where both parties negotiate terms collaboratively, a Black Knight attempts to acquire the target company against its will, usually forcing it to take defensive actions.
Characteristics of a Black Knight Takeover
- Unsolicited Bid – The target company has not invited or sought an acquisition.
- Hostile Approach – The acquirer bypasses the target company’s board of directors and directly appeals to shareholders.
- Aggressive Tactics – The Black Knight may offer a high premium to shareholders, launch a proxy battle, or employ other strategies to pressure the target company.
- Lack of Collaborative Intentions – Unlike a friendly acquirer, a Black Knight often aims to take control rather than work with existing management.
Defensive Strategies Used Against Black Knights
A company under threat from a Black Knight typically employs defensive tactics to prevent the hostile takeover, including:
- White Knight: Seeking an alternative friendly bidder who offers a better deal and preserves company interests.
- Poison Pill: A strategy where the company makes its shares less attractive to the acquirer by allowing existing shareholders to purchase more stock at a discount.
- Golden Parachutes: Providing lucrative exit packages for executives to make the takeover less appealing.
- Crown Jewel Defense: Selling off key assets to make the company less attractive.
Real-Life Examples of Black Knight Takeovers
1. KKR and RJR Nabisco (1988)
One of the most famous hostile takeovers was the bid for RJR Nabisco by Kohlberg Kravis Roberts & Co. (KKR). Initially, RJR Nabisco’s management proposed a leveraged buyout (LBO), but KKR aggressively outbid them, securing the company for $31.1 billion. This takeover became a classic example of a Black Knight scenario.
2. Cadbury and Kraft (2010)
Kraft Foods pursued a hostile takeover of Cadbury, a beloved British confectionery company. Cadbury initially resisted Kraft’s advances, calling them undervalued and hostile. However, after persistent efforts and a significantly improved offer, Kraft successfully acquired Cadbury for $19.6 billion.
3. Arcelor and Mittal Steel (2006)
Mittal Steel launched an unsolicited bid to acquire Arcelor, one of the largest steel manufacturers in Europe. Arcelor initially resisted and sought a White Knight, but eventually, Mittal’s persistence and increased offer led to the formation of ArcelorMittal, the world’s largest steel company.
Conclusion
A Black Knight in M&A represents an acquirer that attempts to take over a company through an unsolicited and often aggressive bid. These takeovers can lead to significant corporate battles, prompting defensive maneuvers to protect the target company’s interests. Understanding this concept is essential for anyone studying corporate finance or business strategy, as it highlights the dynamics of power struggles in the corporate world.