Question

If the employees of San Simeon Company successfully borrowed a large sum of money and purchased the firm from its current owners, we would call this event a(n) ___________.

Answer 1

We would call this event a leveraged buyout (LBO).

Explanation:

A leveraged buyout is the attempt of buying a company primarily through borrowing. This purchasing involves combination of both equity and debt. The funds borrowed are used to buy out the stockholders in the company. The employees, managers, or investors now become the owners of the firm. The firm is taken private, when the managers buy all of the stock of the firm and take it off the open market.

In the above scenario, the employees of San Simeon company purchases the firm from their current owners by borrowing large sum of money.