Definition of Yellow Knight
Yellow knight is a company that was previously going to take over another company but changed its mind and decided to go for a merger with the target company. The purpose of going for a merger instead of the hostile takeover could be that the later would be too expensive. The term yellow in yellow-knight indicates the color association with weakness and cowardice as the yellow-knight company backs off from taking-over another company.
Explanation of Yellow Knight
Most of companies back off from acquiring another company because the takeover could be very expensive. But there are some other reasons due to which the acquiring company is discouraged from taking-over another company. The management of acquiring company might think that the takeover is not possible or advantageous. For example, the acquiring company might realize that more resources are needed to close the deal.