Publication Date
1-1-1990
Document Type
Article
Organizational Units
Sturm College of Law
Keywords
Leveraged buyouts, Buyouts, Employment, Labor
Abstract
Leveraged buyouts have become a popular bête noire. The gargantuan size of the transactions and the perception of unconscionable profits have led to a general pillorying in the popular press. Their unpopularity has generated a congressional call to arms and proposals for “reform” by the Securities and Exchange Commission. The plain effect of these efforts, if successful, would be an increase in the cost of buyouts, thereby reducing their frequency.
While perhaps politically attractive, a reduction in frequency may have long-term, harmful consequences. Leveraged buyouts, particularly those inspired by management, represent the ultimate antitakeover device. No longer can an interloper seize control from existing managers through a hostile tender offer.
Benefits flow from this heightened isolation. The “omnipresent specter” of a takeover attempt induces management to implement strategies designed to preserve independence. In contrast to the suppositions of the reigning view, the desire to remain independent does not cause management to profit maximize. Instead, rational management may choose to “hide”; that is, to avoid the characteristics of the most common class of target companies. Hiding involves a strategy of satisfactory earnings and aversion to risk.
Publication Statement
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Originally published as Brown, In Defense of Management Buyouts, 65 Tulane L. Rev. 57 (1990).
Recommended Citation
Brown, In Defense of Management Buyouts, 65 Tulane L. Rev. 57 (1990).