What is 'Leveraged Recapitalization'

Leveraged recapitalization is 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.

RELATED TERMS
  1. Killer Bees

    An individual or firm that helps a company fend off a takeover ...
  2. Recapitalization

    Restructuring a company's debt and equity mixture, most often ...
  3. Dividend Recapitalization

    When a company incurs a new debt in order to pay a special dividend ...
  4. Leverage

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

    Slang term for any one of a number of measures taken by a company ...
  6. Busted Takeover

    A highly leveraged corporate buyout that is contingent upon the ...
Related Articles
  1. Managing Wealth

    What's Recapitalization?

    Recapitalization is the restructuring of a company’s debt and equity mixture.
  2. Investing

    Warding Off Hostile Takeovers

    The purpose of this article is to provide a general overview of hostile corporate takeovers, while highlighting a general course of action against such activity. This article provides basic information ...
  3. Investing

    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.
  4. Investing

    Corporate Takeover Defense: A Shareholder's Perspective

    Find out the strategies corporations use to protect themselves from unwanted acquisitions.
  5. Small Business

    What is a Takeover?

    A takeover happens when one company makes a bid to acquire a target company.
  6. Investing

    Pinpoint Takeovers First

    Use these seven steps to discover a takeover before the rest of the market catches on.
  7. Investing

    Some Good News Is Bad News For Investors

    Some companies excel at announcing news that is bad for shareholders, but spinning it as good news.
  8. Investing

    Reinvesting Capital Gains In Leveraged Portfolios

    Don't get forced into action. Learn how to plan properly to avoid making rash decisions.
  9. Investing

    Leverage: Is It Good for Your Portfolio?

    Discover the concept of financial leverage. Learn multiple ways to get leverage in your portfolio, and decide if leverage is a good idea for you.
  10. Financial Advisor

    How Private Equity Dividends Work

    Everything you didn't know about private equity dividends.
RELATED FAQS
  1. How can a company buy back shares to fend off a hostile takeover?

    Learn about why a business might use a stock buyback to thwart a hostile takeover attempt by reducing its total assets and ... Read Answer >>
  2. Under what circumstances might a company decide to do a hostile takeover?

    Learn about why companies use a hostile takeover to gain control of another company, and understand the different methods ... Read Answer >>
  3. What are the risks of having both high operating leverage and high financial leverage?

    In finance, the term leverage arises often. Both investors and companies employ leverage to generate greater returns on their ... Read Answer >>
  4. Besides operating leverage, what are other important forms of leverage for businesses?

    Learn about what other forms of leverage exist for businesses besides operational leverage, and the primary leverage metrics ... Read Answer >>
  5. If a company offers a buyback of its shares, how do I decide whether to accept the ...

    Learn why it may often be in the best interest of a shareholder to accept a tender offer made at a premium to the market ... Read Answer >>
Hot Definitions
  1. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  2. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  3. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  4. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  5. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center