What is Whitemail?

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Whitemail is a defensive strategy that a takeover target can use to try to thwart a hostile takeover attempt. Whitemail involves the target firm issuing a large number of shares at below-market prices, which are then sold to a friendly third party.This helps the target avoid the takeover by increasing the number of shares the acquirer must purchase in order to gain control, thus increasing the price of the takeover. It also dilutes the firm's shares. Plus, since a friendly third party now owns and controls a large block of shares, the aggregate number of friendly shareholders increases.If the whitemail strategy is successful in discouraging the takeover, then the company can either buy back the issued shares or leave them outstanding.

Definition

The White Knight Strategy is a defensive tactic used by target companies to thwart hostile takeover attempts. It involves issuing a large number of shares at a price below market value and selling them to a friendly third party, thereby increasing the number of shares the acquirer must purchase, raising the acquisition cost, and diluting existing shares.

Origin

The White Knight Strategy originated in the 1980s during a period of frequent corporate mergers and acquisitions, as companies sought ways to protect themselves from hostile takeovers. The strategy's name reflects its 'friendly' nature, involving a third party to help fend off the acquisition.

Categories and Features

The White Knight Strategy can be categorized into two types: issuing new shares to a friendly party or transferring existing shares to a friendly party. Its features include increasing acquisition costs, diluting shares, and increasing the number of friendly shareholders. It is typically applied when a company faces a hostile takeover. The advantage is effectively blocking the takeover, while the disadvantage is potential shareholder equity dilution.

Case Studies

Case 1: In the 1980s, a large retail company faced a hostile takeover threat and successfully introduced a friendly investment firm through the White Knight Strategy by issuing new shares and selling them to the firm, ultimately blocking the takeover. Case 2: A tech company in 2010 faced a hostile takeover and quickly transferred some shares to a friendly enterprise, successfully maintaining its independence.

Common Issues

Investors may worry that the White Knight Strategy could lead to shareholder equity dilution or negatively impact corporate governance. Additionally, if the strategy fails, it might result in a drop in the company's stock price. A common misconception is that this strategy always succeeds, but its effectiveness depends on the specific circumstances.

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Labor Intensive

The term "labor-intensive" refers to a process or industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods or services: the higher the proportion of labor costs required, the more labor-intensive the business.

Labor Intensive

The term "labor-intensive" refers to a process or industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods or services: the higher the proportion of labor costs required, the more labor-intensive the business.

Fast-Moving Consumer Goods

Fast-moving consumer goods (FMCGs) are products that sell quickly at relatively low cost. FMCGs have a short shelf life because of high consumer demand (e.g., soft drinks and confections) or because they are perishable (e.g., meat, dairy products, and baked goods).They are bought often, consumed rapidly, priced low, and sold in large quantities. They also have a high turnover on store shelves. The largest FMCG companies by revenue are among the best known, such as Nestle SA. (NSRGY) ($99.32 billion in 2023 earnings) and PepsiCo Inc. (PEP) ($91.47 billion). From the 1980s up to the early 2010s, the FMCG sector was a paradigm of stable and impressive growth; annual revenue was consistently around 9% in the first decade of this century, with returns on invested capital (ROIC) at 22%.

Fast-Moving Consumer Goods

Fast-moving consumer goods (FMCGs) are products that sell quickly at relatively low cost. FMCGs have a short shelf life because of high consumer demand (e.g., soft drinks and confections) or because they are perishable (e.g., meat, dairy products, and baked goods).They are bought often, consumed rapidly, priced low, and sold in large quantities. They also have a high turnover on store shelves. The largest FMCG companies by revenue are among the best known, such as Nestle SA. (NSRGY) ($99.32 billion in 2023 earnings) and PepsiCo Inc. (PEP) ($91.47 billion). From the 1980s up to the early 2010s, the FMCG sector was a paradigm of stable and impressive growth; annual revenue was consistently around 9% in the first decade of this century, with returns on invested capital (ROIC) at 22%.

Negotiable Instruments

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Negotiable Instruments

A negotiable instrument is a signed document that promises a payment to a specified person or assignee. In other words, it is a formalized type of IOU: A transferable, signed document that promises to pay the bearer a sum of money at a future date or on-demand.Common examples of negotiable instruments include personal checks, cashier's checks, money orders, certificates of deposit (CDs), promissory notes, and traveler's checks. The person receiving the payment, known as the payee, must be named or otherwise indicated on the instrument. Because they are transferable and assignable, some negotiable instruments may trade on a secondary market.

Renewable Resource

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Renewable Resource

A renewable resource is a resource that can be replenished naturally over time. As a result, it is sustainable despite its consumption by humankind.Renewable resources for the production of energy are considered especially important for their potential to replace non-renewable, or finite, resources. Additionally, renewable resources can offer cleaner energy solutions than those provided by non-renewable resources such as coal and fossil fuels.Examples of renewable resources include the sun, wind, water, the earth's heat (geothermal), and biomass.

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Feasibility Study

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