Question

The Crown Corp. offers to buy the voting stock of the L N Corp. with the intention of acquiring L N and changing its management. To avoid being taken over by Crown, L N asks the Spendle Corp. to outbid Crown. In this situation,

1) L N is a hostile bidder, Crown is the target, and Spendle is a white knight.
2) L N is a friendly suitor, Crown is a hostile bidder, and Spendle is the target.
3) L N is the target, Crown is a hostile bidder, and Spendle is a white knight.
4) L N is the target, Crown is a friendly suitor, and Spendle is a hostile bidder.

Answer 1

L N is the target company facing a hostile takeover by Crown who is the hostile bidder. Spendle acts as a white knight, potentially rescuing L N with a friendlier bid.

Step-by-step explanation:

In this scenario, the correct answer is: 3) L N is the target, Crown is a hostile bidder, and Spendle is a white knight. The terms used here describe specific roles in a corporate acquisition situation. The 'target' is the company that is being pursued for acquisition. L N Corp is identified as the target because Crown Corp is attempting to buy its voting stock and take over the company. When a corporate acquisition is unfriendly and against the wishes of the target company's management, the bidder like Crown Corp is referred to as 'hostile'. Lastly, Spendle Corp is acting as a 'white knight', which is a term for a friendly company that rescues the target company by offering a more favorable takeover bid to help it avoid acquisition by the hostile bidder.