Who benefits from the leverage in LBOs? - Said Business School ...

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Chart C: Two-months adjusted premia. 90% 80% 70% 60% 50% 40% 30% 20% 2-Months Premium on Enterprise Value 10% 2-Months Premium 0% on Equity Value -10% 0% 10% 20% 30% 40% 50% 60% 70% -10% Source: own sample data, calculations and illustrations. 39
Figure e III - Chan nges in a com mpany’s cap pital structuure and inteerest obligattion This fig gure shows the changes in the e capital structu ure at approximmated market vvalues and the interest expennses for the average comp pany in our sam mple. Prior to the announcemment of a takeeover the averaaged equity vaalue was $3. .0 billion plus $0.87 $ billion of o debt. The equ uity value increeased to $3.7 bbillion accordinng to the final bbid price pe er share. Imme ediately after the t LBO the company’s capiital structure aalmost changedd to the oppossite. The spo onsors’ equity contribution had h an average e of $1.2 billioon. The LBO ddebt package hhad a size of $ 3.3 billion of o which $2.0 billion b were le everaged loans with the remaiinder of $1.3 bbillion in high-yyield notes. The average amount of interest exp penses increas sed from $60 million in thee year before tthe LBO to $2250 million in the first year after the LB BO. On top of these expensess comes an average amount of $20 millionn of interest t expenses resu ulting from pay yment-in-kind notes. n * The difference betwee en the equity and debt funding of th he LBO and the eequity purchase price at premium pplus the debt to reetire resul lts from the transac ction costs plus the e amount of restric cted cash accordinng to the new crediit agreement. Source: own o sample data, calculations c and ill lustration. 40
Page 1 and 2: Who benefits from the leverage in L
Page 3 and 4: transaction values are often not di
Page 5 and 6: In this paper, we run a number of s
Page 7 and 8: debt and equity, as well as (not in
Page 9 and 10: While Term Loan A tranches were the
Page 11 and 12: combined market capitalization of $
Page 13 and 14: amortization (D&A) we maintain the
Page 15 and 16: 3.3. Methodology for calculating th
Page 17 and 18: this. First, the increased supply o
Page 19 and 20: tax shields that exceed the value o
Page 21 and 22: These results continue to hold when
Page 23 and 24: these tax benefits should largely a
Page 25 and 26: Jensen, Michael C., 1986, Agency Co
Page 27 and 28: Table II - The 25 largest leveraged
Page 29 and 30: Table IV - Illustrative LBO debt pa
Page 31 and 32: Table VI - Value characteristics of
Page 33 and 34: Table VIII - Capital structure and
Page 35 and 36: Table X - Debt tax shields as a det
Page 37 and 38: Table XII - Debt tax shields based
Page 39: Figure II - Transaction premia to e
Page 43: Figure V - Tax shield in different

Who benefits from the leverage in LBOs? - Said Business School ...

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