A company that offered a hostile takeover but has since changed its mind and decided to discuss a merger. A yellow knight's management may decide that a hostile takeover would be too expensive or otherwise difficult but still believes that the target company would be advantageous. The term is derogatory and implies that the acquiring company (who would have been a black knight) has cold feet or has gone "yellow." One would expect the term to be used by the board, management, or even employees, rather than shareholders.
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