Raising Capital...the idea behind LBO of Tiffany!

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Tiffany has been one of the luxury brands, which was bought by AVON. AVON soon realized that Tiffany as a company did not fit well with the synergies of a mass-market consumer cosmetics company. As a result, the company went out in the financial markets for a leveraged buyout. Although I am not a finance person, what I like about the LBO move by Tiffany was as follows:

1. Besides tax savings, through the LBO, Tiffany was able to seek commitment from the management to improve its operations.

2. As soon as the management bought the company from AVon, there were no agency problems whatsoever. The owner of the company was incentivized to make money and earn profits out of the company.

3. Everytime a leveraged buyout happens, companies tend to fix their problems and go back in the public markets soon!

It is a great way to keep work in progress!

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