Other things equal, which of the following groups of stakeholders should expect to lose value as a result of an LBO?
A)Selling shareholders
B)Buying shareholders
C)Bondholders
D)Investment bankers

Question

Quizplus · Accepted Answer

In an LBO, the acquiring company typically uses debt to finance the purchase of the target company. This increases the debt-to-equity ratio of the acquiring company, which is negative for bondholders as it increases the risk of default. As a result, bondholders should expect to lose value in an LBO. Selling shareholders may benefit from the premium they receive for their shares, buying shareholders may benefit from potential increases in share value, and investment bankers may earn fees for facilitating the transaction.

Other Things Equal, Which of the Following Groups of Stakeholders