Leveraged buyout


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Leveraged buyout (LBO)

A transaction used to take a public corporation private that is financed through debt such as bank loans and bonds. Because of the large amount of debt relative to equity in the new corporation, the bonds are typically rated below investment-grade, properly referred to as high-yield bonds or junk bonds. Investors can participate in an LBO through either the purchase of the debt (i.e., purchase of the bonds or participation in the bank loan) or the purchase of equity through an LBO fund that specializes in such investments.

Leveraged Buyout

The acquisition of a publicly-traded company, often by a group of private investors, that is financed with debt. Often, the acquirer in a LBO issues junk bonds in order to raise the capital necessary for the acquisition. A leveraged buyout allows a company to be taken over with little capital, but it can be a high risk endeavor.

leveraged buyout (LBO)

The use of a target company's asset value to finance most or all of the debt incurred in acquiring the company. This strategy enables a takeover using little capital; however, it can result in considerably more risk to owners and creditors. See also hostile leveraged buyout, reverse leveraged buyout.
Case Study Leveraged buyouts (LBOs) became popular in the 1980s when firms such as Beatrice Companies, Swift, ARA Services, Levi Strauss, Jack Eckerd, and Denny's were acquired and then were taken private. With an LBO, a firm's management often borrows funds using the firm's assets as collateral. The borrowed money is used to purchase all the firm's outstanding stock. As a result, a small group of individuals is able to take control of the firm without using any or much of the group members' own money. Following the buyout the new owners frequently attempt to cut costs and sell assets in order to make the increased debt more manageable. Because the group initiating the LBO must pay a premium for the stock over the market price, an LBO nearly always benefits the stockholders of the firm to be acquired. However, investors holding bonds of the acquired company are likely to see their relative position deteriorate because of the increased debt taken on by the company. For example, the leveraged buyout of R. H. Macy & Co. produced a $16 jump in the price of its common stock at the same time the price of its debt securities fell. Most bondholders have no recourse to the increased risks they face because of the greater resultant debt.

Leveraged buyout.

leveraged buyout (LBO) occurs when a group of investors using primarily borrowed money, often raised with high yield bonds or other types of debt, takes control of a company by acquiring a majority interest in its outstanding stock.

Leveraged buyouts, which are often, but not always, hostile takeovers, may be engineered by an outside corporation, a private equity firm, or an internal management team.

References in periodicals archive ?
Michaels joined Tribune shortly after the 2007 leveraged buyout, brought in by mastermind Sam Zell.
"We thought that it was time to let these shareholders out," says Lewis "Most leveraged buyouts last three to six years.
Macy & Co.'s $3.7 billion leveraged buyout, Campeau Corp.'s takeover of Federated Department Stores for $7.42 billion, and the buyout of Safeway by Kohlberg, Kravis, Roberts & Co.
Musk's $420 per share deal would also top the 1988 $30 billion leveraged buyout of RJR Nabisco, now seen by many as the high-water mark of excess on Wall Street during that decade.
(formerly known as Kohlberg Kravis Roberts & Co.) is an American multinational private-equity firm specializing in leveraged buyouts and headquartered in New York.
Aurelius' lawyers also hammered at last summer's finding by a special bankruptcy examiner, who found that in the two-step leveraged buyout, the second step probably contained fraud.
The planned deal is set to be the largest foreign leveraged buyout in Japan in more than a year.
Prior to joining Madrone, he was a partner at Weston Presidio, a private equity firm focused on growth equity and leveraged buyout transactions.
It completed a $5.1 billion leveraged buyout in 1988 and then re-emerged as a public company in 1992.
"I hope Hicks and Gillett leave ASAP and never manage a sports team again with leveraged buyout.
-- The investment firm Kohlberg Kravis Roberts (KKR) completed a $4.2 billion leveraged buyout of Safeway Inc.
Swenson, 63, assumed the role of CEO following the $20 million leveraged buyout he helped orchestrate