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John Moffat.
John Moffat.-
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huiyu98
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Good evening,
May i ask what is the purpose for LBO as i read through the note it is stated that take a public company private, spin off a portion of existing business by selling it and transfer the private property.However, I am not clear on the purpose stated. Please help me for resolve my queries. thank you.
John Moffat
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The purpose is for one company to buy another without needing much equity finance because most of the money needed (usually about 90%) is borrowed. One example is a management buy-out where the existing management take over the company – they invest their own money in equity in the new company, but most of the finance needed is coming from borrowings.
huiyu98
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Mr John, could i know the further elaboration on take a public company private?
is it means shift a public company into private status through LBO?John Moffat
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One reason for an LBO can be to turn a public company into a private company.
The new company formed will be a private company. If the old company is currently a public company and if the new company is acquiring the whole of the old company then it will have the effect of turning the existing public company into a private company.
huiyu98
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Mr John,
However, usually a private company acquire a public company is to make them become a listed company is it for some benefit? like reduce the listing cost.
But why under LBO they purchase a public company is to make it become private status?John Moffat
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The most likely reason is that there is a majority shareholder currently who does not want to be forced to comply with the rules applying to public companies, or to be forced to consider the other shareholders. So they form a new private company to buy out the existing public company.
huiyu98
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