What is a White Knight?
A white knight is a company that acquires another company that is trying to avoid acquisition by a third party.
How Does a White Knight Work?
For example, let's assume that Company XYZ wants to acquire Company ABC. Company ABC feels that Company XYZ is a hostile bidder and will ruin the company. As a result, Company ABC's directors go on the offensive and tell the shareholders that a sale to Company XYZ would not be a good thing.
Company 123, which has worked with Company ABC for years and has a good relationship with its board, sees an opportunity to 'save' Company ABC from the tense situation and make a lucrative acquisition at the same time. Company ABC welcomes Company 123's bid and merges with it to avoid acquisition by Company XYZ. Company 123 is a white knight.
Why Does a White Knight Matter?
White knights make acquisitions on friendly terms. White knights are white because they are associated with goodness and virtue.