Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Yellow Knight

What it is:

A yellow knight is a company that backs out of an attempt to take over another company.

How it works (Example):

Let's assume 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 XYZ, fearing a legal battle and little support from shareholders on both sides, backs off. That is, it becomes a yellow knight. Instead, Company XYZ comes back to Company ABC on more friendly terms and proposes a merger.

Why it Matters:

Yellow knights are yellow because the color is associated with cowardice.