Leveraged Recapitalization

AAA

DEFINITION of 'Leveraged Recapitalization'

A corporate strategy in which a company takes on significant additional debt with the intention of paying a large cash dividend to shareholders and/or repurchasing its own stock shares. A leveraged recapitalization strategy typically involves the sale of equity and the borrowing or refinancing of debt.

The result is asset and/or liability restructuring, where the company's liabilities are increased and where equity is reduced. This strategy is an intentional antitakeover measure used to make the corporation less attractive to potential acquirers. In mergers and acquisitions, strategies, these are often called "shark repellents," since they are intended to fend off unwanted or hostile takeover attempts. Also called leveraged recap.

INVESTOPEDIA EXPLAINS 'Leveraged Recapitalization'

If an unfriendly takeover attempt has been initiated, a target company's management has a variety of antitakeover measures it can utilize to stave off the attempt. A leveraged recapitalization is one such method, and it is performed to make the target company less financially attractive (because of increased debt and decreased equity).

Other antitakeover measures include the white knight, where the target company attempts to find a more friendly acquiring company; or a pacman defense (named after the video game), in which the target company makes a takeover bid for the stock of the bidder.

RELATED TERMS
  1. Takeover

    A corporate action where an acquiring company makes a bid for ...
  2. White Knight

    A white knight is an individual or company that acquires a corporation ...
  3. Hostile Takeover

    The acquisition of one company (called the target company) by ...
  4. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  5. Risk Arbitrage

    A broad definition for three types of arbitrage that contain ...
  6. Stub

    The balance part of a check or receipt that is retained for record-keeping ...
Related Articles
  1. Fundamental Analysis

    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.  Here we take a look at how you can evaluate whether the debt will affect your investment.
    Investing Basics

    Will Corporate Debt Drag Your Stock Down?

    Borrowed funds can mean a leg up for companies or the boot for investors. Find out how to tell the difference.
  3. Options & Futures

    Trading The Odds With Arbitrage

    Profiting from arbitrage is not only for market makers - retail traders can find opportunity in risk arbitrage.
  4. Active Trading Fundamentals

    What is liquidity risk?

    Learn how to distinguish between the two broad types of financial liquidity risk: funding liquidity risk and market liquidity risk.
  5. Stock Analysis

    Breaking Down the Halliburton Baker Hughes Deal

    Halliburton is using a downturn to get bigger and stronger in the long term, and the company is getting Baker Hughes at a reasonable price as a result.
  6. Active Trading Fundamentals

    What does the gearing ratio say about risk?

    Find out why lenders and investors pay close attention to a firm's gearing ratios, and why both too much and too little borrowing can be risky.
  7. Mutual Funds & ETFs

    How do hedge funds determine what assets to own?

    Learn about the various types of investments that hedge fund managers use, and explore basic hedge fund management trading strategies.
  8. Brokers

    Key Differences Between M&A Advisors And Business Brokers

    For a buy, sale or partnership for one's business, one needs brokers and advisors to proceed ahead. Here are the key differences between business brokers and M&A advisors.
  9. Trading Strategies

    Selecting Mergers & Acquisitions Advisories For Small Businesses

    Mergers and acquisitions advisories aren't just for big players. Many advisory firms cater to small and medium businesses.
  10. Investing

    M&A Advisory Business Boutiques: How The Small Shops Are Capturing Large M&A Deals

    M&A advisory boutiques are becoming a big business, giving large investment banks a run for their money.

You May Also Like

Hot Definitions
  1. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  2. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  3. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  4. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  5. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  6. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
Trading Center