Going Private and Leveraged Buyouts

As we have previously discussed, going private is what happens when the publicly owned stock in a firm is replaced with complete equity ownership by a private group, which may include elements of existing management. As a consequence, the firm's stock is taken off the market (if it is an exchange-traded stock, it is delisted) and is no longer traded.

One result of going private is that takeovers via tender offer can no longer occur since there are no publicly held shares. In this sense, an LBO (or, more specifically, an MBO) can be a takeover defense. However, it's only a defense for management. From the stockholders' point of view, an LBO is a takeover because they are bought out.

10Some plans also contain "flip-over" provisions. These allow the holders to buy stock in the merged company at half price.

Ross et al.: Fundamentals VIII. Topics in Corporate 25. Mergers and of Corporate Finance, Sixth Finance Acquisitions

Edition, Alternate Edition

CHAPTER 25 Mergers and Acquisitions 863

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