Busted Takeover

Dictionary Says

Definition of 'Busted Takeover'

A highly leveraged corporate buyout that is contingent upon the selling off of some of the acquired company's assets. A busted takeover occurs when an acquired company's assets are sold in order to meet the cost of acquisition. The assets of the company being acquired may be used as collateral for the financing required for the deal to go through. Once the target company is acquired, some of its assets are sold in order to pay back a portion of the funds that the acquiring company used to finance the initial buyout. The acquiring company must properly evaluate the target company's assets to confirm that the sale of the assets will adequately cover the debt.
Investopedia Says

Investopedia explains 'Busted Takeover'

The term 'busted takeover' is used in the world of mergers and acquisitions, or "M&A." Mergers, acquisitions and takeovers allow companies to develop competitive advantages and increase shareholder value. In a merger, two companies mutually agree to join forces and become one company. An acquisition is a corporate action in which one company purchases most or all of a target company's ownership stakes in order to take control of the target company. Acquisitions can be either friendly, where the target company agrees to be acquired, or hostile, where the target company does not agree and resists the acquisition. A hostile acquisition is often called a takeover, or a hostile takeover.

A busted takeover may be a successful strategy when the acquiring company has limited cash (and needs to borrow to fund the purchase) and the target company has undervalued assets that the acquiring company wishes to exploit. For example, assume company ABC wants to acquire company XYZ because it is looking to diversify. Company ABC is cash poor and will need to leverage itself to finance the deal. As a term of the deal, company ABC must agree to sell off some of company XYZ's assets and give the proceeds to the financier, repaying part of the amount that company ABC had to borrow to finance the deal.

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Related Definitions

  1. Acquisition

    A corporate ...
  2. Leveraged Buyout - LBO

    The acquisition ...
  3. Takeover

    A corporate ...
  4. Target Firm

    A company which ...
  5. Leverage

    1. The use of ...
  6. Operating Leverage

    A measurement of ...
  7. Deleverage

    A company's ...
  8. Revlon Rule

    A legal ...
  9. Hostile Takeover Bid

    An attempt to ...
  10. Self-Tender Defense

    A form of ...

Articles Of Interest

  1. Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.
  2. The Basics Of Mergers And Acquisitions

    Learn what corporate restructuring is, why companies do it and why it sometimes doesn't work.
  3. Benckiser Buys More Of The Coffee Business (CBOU, SBUX, RBGPY, KRFT)

    Reimann family holding company is paying $340 million for Caribou Coffee, and paid $1 billion for Peet's in July. Is it looking to take on Starbucks?
  4. Understanding Pro-Forma Earnings

    These figures can either shed light on a company's performance or skew it. Find out why.
  5. The Advantages Of Investing In Aggressive Companies

    Often the most attractive companies are also a little fierce - learn how to spot healthy corporate aggression.
  6. 6 Decisions That Cost Companies Millions

    Here are some of the worst business decisions of all time, made across a broad range of sectors and industries.
  7. Finding The Best Buyer For Your Small Business

    Learn more about the process business owners go through to seal a merger or acquisition deal.
  8. Find Equity Opportunities With Currency Moves

    Understanding the relationship between these markets can help you spot profitable stocks.
  9. Trading The Odds With Arbitrage

    Profiting from arbitrage is not only for market makers - retail traders can find opportunity in risk arbitrage.
  10. 8 Good Intentions With Bad Outcomes

    Here are some historical examples of companies that tried to do the right thing and failed miserably.

comments powered by Disqus
Recommended
Loading, please wait...
Trading Center