The aftermath of a leveraged buyout might include:
A)the immediate sale of the some of the firm's assets or divisions to pay down excessive debt.
B)the prospect of failure from an inability to service the excessive debt.
C)an imminent proxy fight.
D)a or b.

Question

Quizplus · Accepted Answer

In a leveraged buyout, the acquirer typically uses a significant amount of debt to finance the purchase of the target company. This leaves the target company with a high level of debt that needs to be serviced, which can lead to financial distress or even bankruptcy if the target company is unable to generate enough cash flow to meet those obligations. As a result, the aftermath of a leveraged buyout often involves the sale of some of the target company's assets or divisions to pay down the excessive debt, or the prospect of failure due to an inability to service that debt. Therefore, both options A and B are likely outcomes of a leveraged buyout. Option C, an imminent proxy fight, is not a typical consequence of a leveraged buyout.

The Aftermath of a Leveraged Buyout Might Include