the company in question. Within two months, the company successfully fended off hostile takeover attempts, first by T. Boone Pickens, then by Carl Icahn. However, the greenmail agreements were such that the company took on a heavy level of debt. When the price of oil fell well below what Phillips expected, the company found itself with more debt than it was able to handle, and so was forced into encouraging early retirements and restructurings in its organization -- likely the same result had the company succumbed to one or another of the takeover offers.
The term (leverage( pertains to the use of debt to pay for the common stock of a company. This is in contrast to using cash or selling more common stock. The debt may take the form of bonds or some other type of debt. While most buyouts today involve the use of some amount of leverage, a few are completed through the use of cash or through stock exchanges. Most buyouts involve a combination of these financing arrangements. The use of leverage (debt) in buyouts has gained particular attention during recent years since it became increasingly popular during the 1980s.
Junk bonds are bonds offered by companies which are not considered investment grade by major ratings institutions (such as Standard & Poor(s or Moody(s). These bonds offer higher yields than other bonds because they are considered more risky. Investors sometimes choose to invest in junk bonds when it appears that corporate assets and the corporate environment justify the risk. Junk bonds were used to finance a number of leveraged buyouts during the 1980s, and some holders of corporate bonds found their bonds downgraded to junk bond status from investment grade when companies took on significantly higher debt levels either to finance a takeover or to fend off a takeover. Holders of RJR Nabisco bonds were among these types of investors who found their bonds downgraded through no fault of their own. Investor...