When a management team buys the firm from current shareholders while continuing to manage and often incurring large segments of debt,it is known as a:
A) management buyout.
B) spin-off.
C) successful greenmail attempt.
D) corporate breakup.

Question

Quizplus · Accepted Answer

A management buyout occurs when the current management team of a firm purchases the company from its shareholders, often using debt financing to do so. This allows the management team to take control of the company and operate it as they see fit, without having to answer to external shareholders. A spin-off involves separating one part of a company and creating a new independent entity, while greenmail is a practice where a large shareholder forces a company to buy back its shares at a premium to avoid a takeover. A corporate breakup involves breaking up a company into smaller parts or selling off parts of the business.

When a Management Team Buys the Firm from Current Shareholders