(FINANCE) when somebody buys a corporation using borrowed
money ("leverage"), with the expectation that the new owner will able to pay for it from the corporation's own profits.
Kohlberg Kravis and Roberts (KKR) developed the LBO back when
Jerome Kohlberg, Jr. and Henry Kravis were still partners at Bear Stearns (1960's). The technique was refined by Michael Milken's methods of underwriting and trading
junk bonds. At the same time, corporate raiders and takeover artists like T. Boone Pickens perfected greenmail as a way to make
money from failed hostile takeovers.
In constant US dollars, the largest leveraged buyout
deal in
history was the KKR takeover of RJR Nabisbo for $31.1 billion (1989). In 2006, several deals of
even larger size were planned or attempted, but adjusted for inflation, they were not as large.