Legal Risks and Regulatory Suggestions for Cross-Border Leveraged Buyouts

Abstract

Leveraged Buyout (LBO), which emerged in the United States in the 1960s and 1970s, is a corporate acquisition method in which the acquiring party uses financial leverage to increase the debt-to-equity ratio in the purchase of the target company's equity. LBOs utilize the principle of financial leverage and have the dual characteristics of high risk and high returns. On the one hand, as a mechanism based on the market allocation of resources, LBOs affect the entire social and economic system, continuously promote the development and improvement of corporate governance systems and structures, and accelerate the progress of enterprises. On the other hand, it often has a high-risk nature, and the excessive use of leverage may cause financial disorder and turbulence in capital markets. Based on the typical case of Geely's acquisition of Volvo, a multinational LBO, as well as the relatively mature legal and regulatory practices in the United States, this article analyzes the problems existing in the LBO process, such as high leverage ratios and complex structures of acquisition funds, inadequate information disclosure, and difficulties in protecting the rights and interests of small and medium-sized investors, as well as the legal risks that may be faced by companies' financing, shareholder rights, and creditor rights. Suggestions are made from three aspects: emphasizing information disclosure, improving judicial remedies, and strengthening financing supervision.