What is a buyout?
In a buyout a company buys shares in another company in order to gain a controlling interest. Buyouts are also known as acquisitions or takeovers.
Where have you heard about buyouts?
In 1998 Exxon Mobil – the largest of the world's Big Oil companies - came into being. Although often described as a merger, it was instead a buyout of Mobil by Exxon for $77.2 billion, with the Exxon shareholders gaining a 70% stake in the newly formed company.
What you need to know about buyouts.
A company may follow a buyout strategy for several reasons, including increasing revenues, streamlining operations, reducing competition or accessing new markets.
In the buyout process the acquiring company first researches and analyses the financial health of the target company. The two companies then meet to discuss the potential buyout and the acquiring company makes an offer to the target company's board of directors. They may also detail their strategy for restructuring and improving the company once the buyout is complete.
The board passes on the deal to the shareholders and recommends that they either accept or reject the deal. The board's recommendation implies whether the buyout will be friendly or hostile. The board's rejection of the deal does not necessarily mean the buyout will not go ahead.
Find out more about buyouts.
In a leveraged buyout a company borrows money in order to buy a controlling interest in a target firm. Read our definition to find out more.