Anatomy of a Leveraged Buyout - NYU Stern School of Business

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(a) There are no taxes A Hypothetical Scenario (b) Managers have stockholder interests at hear and do what’s best for stockholders. (c) No firm ever goes bankrupt (d) Equity investors are honest with lenders; there is no subterfuge or attempt to find loopholes in loan agreements (e) Firms know their future financing needs with certainty What happens to the trade off between debt and equity? How much should a firm borrow? Aswath Damodaran 10
The Miller-Modigliani Theorem In an environment, where there are no taxes, default risk or agency costs, capital structure is irrelevant. The value of a firm is independent of its debt ratio and the cost of capital will remain unchanged as the leverage changes. Aswath Damodaran 11
Page 1 and 2: Anatomy of a Leveraged Buyout: Leve
Page 3 and 4: One Example: The Harman Deal Pre-de
Page 5 and 6: I. Value and Leverage Aswath Damoda
Page 7 and 8: The fundamental question: Does the
Page 9: 1. Tax Benefit: Debt: The Basic Tra
Page 13 and 14: Tools for assessing the effects of
Page 15 and 16: How the debt trade off manifests it
Page 17 and 18: Harman : Working out the mechanics.
Page 19 and 20: Limitations of the Cost of Capital
Page 21 and 22: Estimating the Distress Effect- Har
Page 23 and 24: c. The APV Approach to Optimal Capi
Page 25 and 26: Harman: APV at Debt Ratios Based up
Page 27 and 28: The macro environment has a relativ
Page 29 and 30: II. The Value of Control Aswath Dam
Page 31 and 32: What is the value of control? The
Page 33 and 34: Reinvestment Rate 42.00% Current Ca
Page 35 and 36: Reinvestment Rate 70.00% Current Ca
Page 37 and 38: Implications for the control premiu
Page 39 and 40: III. The Public/ Private Transition
Page 41 and 42: Perceived Risk: Private versus Publ
Page 43 and 44: Why go private? Agency issues: The
Page 45 and 46: Good candidates for going private..
Page 47 and 48: Leverage and Control The good: A f
Page 49 and 50: Leverage and Going Private The Goo

Anatomy of a Leveraged Buyout - NYU Stern School of Business

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