This time it was a White Knight
. He drew up at Alice's side, and tumbled off his horse just as the Red Knight had done: then he got on again, and the two Knights sat and looked at each other for some time without speaking.
Fortunately, it is also a story of a dramatic rescue through the combined efforts of skilled professionals, government agencies, a white knight
and a proactive financial institution.
To be classified as a white knight, the bidder must meet both of the following criteria:
If management usually makes good decisions, it will probably also make good decisions when it makes a bid as a white knight. Tobin's q indicates the cumulative effect of many decisions; the CARs for the firm indicate the efficiency of the decision to bid on the target.
If the target's board determines a takeover is not in shareholders' best interests, defensive measures generally are taken, possibly including the search for a white knight.
The central tax issue is whether the costs of defending against a hostile takeover or facilitating a white knight acquisition are deductible.
unsuccessful search for a white knight were deductible in the year the search was abandoned.
A target corporation arranged to be acquired by a white knight as a hostile takeover defense.
The IRS concluded that the Tax Court's reasoning in National Starch was equally applicable with respect to costs incurred in the successful search for a white knight. In requiring the takeover defense expenses to be capitalized, the IRS offered the following explanation:
Once a decision has been made to seek out a white knight, any subsequent costs would be capital in nature under the Tax Court's reasoning in National Starch.
If this were a medieval fable, in face of this hopeless situation, one could look forward only to a white knight
on his steed galloping to the rescue.
Clearly, under the hypothesis that white knights systematically overbid, becoming a white knight does not serve the interests of the bidder's shareholders.
Another view of white knights is advanced by Shleifer and Vishny |24~, who present a model in which acquisition by a white knight represents the optimal synergistic combination of target and bidding firm assets (termed the "maximum synergy hypothesis" in this study).
First, acquisition by a white knight does not result in significantly different synergy than acquisition by a hostile bidder.
This required an explicit reference in the responsible financial press to the bidder as a white knight