Leveraged buy-outs (LBOs) must be profitable for the investors backing them (or else I'm sure they wouldn't), but I agree that it is very strange, and I really don't understand how this could be the case.
I dont understand why people are so confused and skeptical about this.
Its basically like a mortgage. Buy a house and use it as collateral for the loan
They are absolutely profitable for the investors backing the buyout, but they are generally detrimental to everyone else in the equation - all the existing shareholders, whose previous-profitable investment is now a debt-ridden mess, plus all the employees who are about to be laid off from the now-sinking-under-debt company
Isn't idea of leveraged buyout well buyout? And almost always with premium. That is existing shareholders get paid more than current market price of their holdings. So they should also be winners and able to redeploy the capital they got.
Premiums on buyouts are kind of interesting: the buyout price was a 25% premium on the day the news was announced (and a 17% premium over the all-time high)... but of course the market immediately priced that in, so for the past few weeks it's been just a 5% premium over where EA stock is actually trading.
