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i want to ask a question regarding Doric Co – Management buyout where fridge division was reporting losses and parts division was profitable and directors decides to close down the fridge division and parts division through leverage management buyout.
In calculation fridge division assets proceeds was used to pay redundancy and liabilities.
Remaining liabilities + buyback equity at 20% premium + $50m investment to get 3.5% growth = amount of funds needed for management buyout
Kindly explain the complete theme of this part of question.
who will get these funds?
in management buyout , do we pay liabilities , buyback shares ?Imagine for a moment that the managers were forming a completely new company. The money they put in would go towards buying the assets needed.
Here, they are buying the company from the existing shareholders, so some of the money they put in goes to the existing shareholders (buying back the equity). Some of the money goes towards buying new assets (to get the future growth), and some of it goes to paying off liabilities.
Why do we need to pay current + non current liabilities in management buyout ? Cant we run the business with same liabilities? Only paying off the existing shareholders ( the real owners ).
I understand it around 80%. This last query will really help me understand it fully.
Thanks tutor.
Forget for the moment the additional investment needed.
If all they did was put in enough money to pay off the original owners, then how could they pay off the liabilities? The need to put enough money in to pay them also.
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