| Author | Jindal, Anil |
| Call Number | AIT RSPR no. SM-93-23 |
| Subject(s) | Leveraged buyouts--Australia
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| Note | A research study submitted in partial fulfillment of the requirement for the degree of Master of Business Administration. |
| Publisher | Asian Institute of Technology |
| Series Statement | Research studies project report ;no. SM-93-23 |
| Abstract | This case study is about the most expensive leveraged buyout in Australia in which a very long established company John Fairfax was bought out in 1987 for Aus$ 3.08 billion. It documents the LBO process followed in this buyout, role played by LBO specialist firm and investment banker in the transaction and the changes in company's operating performance ratios and cash flows after the buyout. Leveraged buyouts result in large financial gains to pre-buyout shareholders and bring handsome return to investors in LBO transaction. LBOs are financed with very large amount of debt because of tax advantage due to increase in interest expenses and stepped up depreciation charge after the buyout. An LBO creates pressure on management for gearing up the whole plant activities and generate not only extra sales but also reduce operating costs and overhead expenses. Cash flow analysis is consistent with free cash flow hypothesis proposed by Jensen(l986) that target LBO candidate should have free and stable cash flows. Post-LBO cash flows are committed to retirement of debt and service interest obligations therefore managers have less control and discretion in spending them. The study also documents the asset divesture of this company after LBO for early retirement of a significant portion of the debt taken during buyout. The important lesson from this case study is the value of consistent cash flows and the existence of significant marketable non-core assets in successful outcome of an LBO. |
| Year | 1993 |
| Corresponding Series Added Entry | Asian Institute of Technology. Research studies project report ; no. SM-93-23 |
| Type | Research Study Project Report (RSPR) |
| School | School of Management (SOM) |
| Department | Other Field of Studies (No Department) |
| Academic Program/FoS | Master of Business Administration (MBA) (Publication code=SM) |
| Chairperson(s) | Gougeon, Patrick |
| Examination Committee(s) | Swierczek, Fred W.;Hyun, J.H. |
| Scholarship Donor(s) | Government of Netherlands. |
| Degree | Research Studies Project Report (M.B.A.) - Asian Institute of Technology, 1993. |