White knights and black knights. Does the search for competitive bids always benefit the shareholders of “target” companies?

Abstract

According to the EC Directive on Takeover Bids, defensive measures should be authorised by the general meeting of the target company. The incumbent board can, nonetheless, search for a competing bid, a so-called “white knight”. The rationale underpinning this exception is that competing bids always benefit target’s shareholders. In this paper I will tackle this rationale, arguing that even competing bids could generate a pressure to tender on target’s shareholders and, therefore, in this case should not be considered as a benefit for them.