Leverage Buyout, Mergers and acquisition, corporate valuation, tata steel, Corus steel, tata Tetley, Dell computers, Bank, Advantage and Disadvantages of Leveraged Buyout, Debt, equity, corporate finance, Foreign investment, the tax benefit, Indian scenario of a leveraged buyout, credit rating,

1. Leverage buyout

2. Leverage Buyout: A way of acquisition in which a company
is acquired majorly through debt
Acquiring Company
(Buyer)
Target Company
(Seller)
New Company
Debt
Financing
75%
Equity
25%

3. Why LBO?
Equity
Debt
Equity
Debt
Higher return on Equity
Tax Benefit
Economies of Scale
Technological Advancement
Higher Internal Rate of Return(IRR)

4. Drawbacks
Bankruptcy Ahead
Financial Instability
Profit drops significantly as revenue falls
Poor Credit Rating
High Debt, High Risk

5. Step1
Assumption
of Purchase
price
Step2
Creating
Sources
and Uses
of Funds
Step 3:
Financial
Projections
Step 4:
Balance
Sheet
Adjustment
Step 5:
Exit
Step 6:
Calculating
Internal Rate
of Return
(IRR) on the
Initial
Investment
LBO Steps

6. Indian Scenario
Domestic Banks are prohibited from providing loans to acquire
shares of Indian Entity by FIPB
External Commercial Borrowings (ECB) regulations, Indian entities
cannot take loans from non-residents
Compliance with thin capitalisation provisions, which
restricts tax deductibility of interest payments beyond
prescribed limit
FDI Caps are present in every sector
India scenario is unfavorable for LBO due to …..

7. On September 12, 2013, the buyout
by founder and CEO Michael DELL
and private equity firm Silver Lake
Partners of DELL for $25 billion had
been approved by DELL
stockholders.
The merger transaction closed on
October 29, 2013, and the delisting
from NASDAQ Stock Market
commenced.
DELL shareholders received $13.75
in cash, in addition to a special
dividend of $0.13 per common
share.

8. Tata Tea was one of the largest tea company
faced several challenges in 1999, like
Deregulation, Customer base, less
international sales and stiff competition
from other brands.
In order to overcome, they needed to
improve and sustain in the global
competition.
For that they needed to acquire other global
brand. The solution provided was Leveraged
Buy Out.
Therefore Tata Tea acquired Tetley brand by
leveraged buy outing deal. The value of Tata
Tea was $114 million and that of Tetley was
$450 million

9. • Tata Steel acquired Corus steel for $8 bn of $6 bn is raised using debt
• The combination of Corus (18.18MT pa) and Tata (4.4MT pa) would create the fifth largest steelmaking company
worldwide.
• But the current scenario is not so good for Tata steel and they have decided sell of 50% stake