What is a Yellow Knight?

A yellow knight is the name given to a corporation that was planning a hostile takeover but reconsiders its decision and decided to propose a merger to the other company. A hostile takeover occurs when an acquiring company decides to buy or takeover a company when the target company is not willing to relinquish its ownership. In a situation where a company that was initially planning a hostile takeover changes its approach and proposes a merger to the target company, a yellow knight has emerged.

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What Does a Yellow Knight Do?

Yellow knights are former predators in a hostile takeover but changed their approach to merge with the target company. Reversal of hostile takeover to merger can occur for a number of reasons, one of the major reasons is when that takeover will cost more or when the target company is quite strong and has a lot of defense tactics. A merger is friendlier than a hostile takeover, in a merger, both companies have equal positions. Although, a yellow knight can be described weak for backing out of a proposed hostile takeover. In most situations, yellow knights are said to emerge when acquiring company chickens out or develop cold feet and could no longer execute a hostile takeover.