Wall Street Redbook Practice Test

The main goal of a white knight defense is to insert a friendly acquirer before a hostile takeover occurs. This defensive strategy is employed by a company that is facing a takeover attempt from an unfriendly bidder. By bringing in a white knight, which is usually a more favorable or friendly entity, the target company aims to protect itself and its interests. The white knight acquires the company or an interest in it, effectively thwarting the hostile takeover attempt and often leading to a more congenial acquisition process that is aligned with the interests of the target company's management and shareholders.

This approach not only helps to preserve the company’s original management structure but also provides assurance to employees and stakeholders about the future direction of the company. It highlights the importance of maintaining corporate control and offers an alternative that can be more beneficial for the company as a whole compared to the usual outcomes of a hostile takeover.