Equity in a financial context has the following meanings:

• the net assets of a company after payment of creditors is called the shareholders’ equity (also referred to as owners’ equity);

• the ownership interest in an asset minus the debt owed on the asset, e.g. the owner of a house worth €100,000 with a mortgage of €75,000 is said to have equity in the house of €25,000;

• the ownership interest in a company represented by shares as opposed to bonds; here we speak about ‘equity financing’ as opposed to ‘debt financing’;

• in a brokerage account, the excess of securities over a debit balance in a margin account.

A Black Knight is a company that makes a hostile takeover offer on a target company. An allusion to the evil villain of many fairytales, this term demonstrates how a targeted company sees its adversary.

A White Knight is a company that is invited to make a friendly takeover offer to a target company that is being faced with a hostile takeover from a separate party and thereby prevent its acquisition by the hostile bidder, a so-called black knight.

Similar to a white knight, a White Squire is considered to be a friendly acquirer. However, white squires do not require a controlling interest in the target company as a white knight would, and instead of purchasing a majority interest, white squires purchase a lesser interest in the target firm.

A Gray (or “grey”) Knight is a second, unsolicited bidder in a corporate takeover that seeks to take advantage of problems between the first bidder and the target company.

A Yellow Knight is a company that once attempted a takeover and ends up discussing a merger with the target company. The implication being that the company attempting the takeover lost its nerve and opted for a mutually agreed merger instead of making an aggressive move.

Crown Jewels denote a particularly profitable or otherwise valuable corporate unit(s) or asset(s) – sometimes the most valuable unit of a corporation as measured by profitability, asset value, earning power, and future business prospects, etc. The crown jewels are often the main objective or target of takeover attempts and may be sold by the target company as part of a defensive strategy to make the rest of the company less attractive to the hostile bidder.

A Lady Macbeth Strategy is a corporate takeover strategy named after Shakespeare’s Lady Macbeth who devised a plan for her husband to kill the King of Scotland that required her to appear friendly and virtuous in order to gain the King’s trust. The Lady Macbeth Strategy requires a third party to pose as a white knight to gain trust. This purported white knight then turns around and joins with unfriendly bidders in a hostile takeover.

Under this scheme, each time an unexpected expense occurs the buyer puts it into a basket with a predetermined limit (e.g. €20,000). Here, the basket is a de minimis monetary limit, below which the buyer may not seek indemnification from the seller. Until the amount of liabilities in the basket reaches €20,000, the buyer is responsible for them. If and when the amount in the basket reaches €20,000, i.e. the basket is filled; the buyer can pass any liabilities over and above the limit to the seller.

Alternatively, a cap is an upper monetary limit on total liability to the seller for these unexpected costs. In other words, a cap is a limit on the obligation of the seller to indemnify the buyer that is set at some mutually agreeable level. The cap is typically used in sales where the buyer assumes unknown future liabilities. While the seller may be required to pay back some portion of the sale proceeds, the seller’s maximum liability is limited.

The Revlon rule requires boards of companies that are to be sold to conduct the sale in such a way as to reach a deal that most benefits the corporation’s shareholders. Essentially, when it becomes clear that a corporation is going to be sold, long term corporate plans and interests are set aside and the board acts merely as “auctioneers” on the shareholder’ behalf. The case set conditions under which a board must take the higher bid declaring that when there are two or more buyers in an all-cash deal and the bidders have the necessary financing. For example, The Court found that the board was in violation of its Revlon fiduciary duties by favoring the group’s bid.

Revlon Moment – denotes a standard in corporate law that holds when the takeover of a corporation becomes inevitable, that corporation’s board of directors has a duty to maximize shareholder value.