A leveraged buyout (LBO) is a restructuring of the capitalization and ownership of a company. The term leveraged refers to the use of debt as the primary method of financing the restructuring. The buyout portion refers to the fact that the method is often used to transform a publicly held company into one that is privately held. There are a number of reasons why this type of transaction might take place. These include cost savings, managerial incentives, decreasing the total number of owners, tax benefits, flexibility, and control. Oftentimes, the group pursuing the buyout includes the publicly held firm's upper management. This type of action is known as a management buyout (MBO).

Among the multiple parties involved when a public firm is taken private, there normally are both winners and losers. Existing shareholders who have their shares purchased in the buyout often win big. This is...