how a leveraged buyback works
theoretically leveraged buybacks should have no immediate impact on a company s share price net of any tax benefits from the new capital structure and higher interest payments but the extra debt provides an incentive for management to be more disciplined and improve operational efficiency through cost cutting and downsizing in order to meet larger interest and principal payments a justification for the extreme levels of debt in leveraged buyouts leveraged buybacks are sometimes used by companies with excess cash to decapitalize their balance sheets to avoid overcapitalization increasing the debt on the balance sheet can provide shark repellant protection from hostile takeovers but more often than not leveraged buybacks like other share repurchases are simply used to increase earnings per share eps return on equity roe and price to book p e ratio 