We rationalize why leverage in buyouts differs from corporate leverage at large by merging two strands of buyout theory that focus on problems of public ownership: the Berle-Means problem (lack of incentives) and the Grossman- Hart problem (free-riding).
We derive in such a framework the novel result that the combination of bootstrapping, very high leverage, and upfront cashouts is socially optimal and increases buyout premia. This buyout structure mimics a management contract, paying a bidder (e.g. a private equity firm) upfront cash and stock to manage the target, with the cash portion funded by debt imposed on the target.
The EU Takeover Bids Directive was passed twenty years ago with the main objective of promoting a single European takeover market. The primary mechanism...
Firms have inefficiently low incentives to innovate when other firms benefit from their inventions and the innovating firm therefore does not capture...
In recent times, there has been an unprecedented surge in national security review (NSR) measures, with host jurisdictions implementing restrictions...
The E.U. Takeover Directive was passed twenty years ago with the main aim of fostering a single European takeover market. However, subsequent economic,...