Bust-Up Takeover

A bust-up takeover occurs when one company that does not have a lot of dough wants to acquire another company, bust it up, and sell off the pieces for more than the value at which the whole was originally trading.

For example, Loaded With Moolah, Inc. is a very attractive takeover target because they have a lot of cash and other undervalued assets on hand. So the acquiring company, No Cash Limited, issues some junk bonds in order to complete the sale. They then help themselves to Loaded with Moolah’s cash, and also sell off some business units in order to pay back the junk bonds.

This does not put Moolah in a great financial position for ongoing profitability, but at least it protects them from other hostile takeovers, since now they have very little cash on hand.

A famous bust-up takeover occurred in 1985 when Pantry Pride, a large supermarket chain, used junk bonds to finance the purchase of the cosmetics company, Revlon. When the purchase was complete, Pantry Pride’s owner, Ron Perelman, sold over $1 billion worth of Revlon’s business units to pay back the junk bonds.