Leveraged Recapitalization


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.

BREAKING DOWN '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.

  1. Takeover

    A corporate action where an acquiring company makes a bid for ...
  2. Risk Arbitrage

    A broad definition for three types of arbitrage that contain ...
  3. White Knight

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

    The acquisition of one company (called the target company) by ...
  5. Stub

    The balance part of a check or receipt that is retained for record-keeping ...
  6. Leverage

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