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ACCA Strategic Professional · Advanced Financial Management · Regulatory framework and processes

A target's directors are advised that a 'white knight' defence may be appropriate. Which statement about this defence is correct?

A white knight defence involves the target inviting a friendly company to make a competing, more acceptable offer. The target usually still loses its independence, but on better terms. Other tactics such as Pacman, share placings and crown jewel sales work in different ways.

  1. AThe target seeks a friendly company to make a competing, more acceptable bid, though control may still be lost to that companyCorrect
  2. BThe target buys shares in the hostile bidder to threaten a reverse takeover
  3. CThe target issues new shares to a loyal investor group so that the bidder cannot reach control, with no loss of independence
  4. DThe target sells its best business to a third party to reduce the bid's attractiveness

Explanation

A white knight is a friendly rival bidder who offers better terms or management continuity. The target is still taken over, so independence is lost. Buying the bidder's shares is a Pacman defence, issuing shares to loyal holders is a placing, and selling the best business is a crown jewel defence.

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