ORGANIZATIONAL FORM AND THE CONSEQUENCES OF HIGHLY LEVERAGED TRANSACTIONS KROGERS RECAPITALIZATION AND SAFEWAYS LBO

This paper compares the leveraged recapitalization of Kroger Co. with the leveraged buyout of Safeway Stores. While both transactions dramatically increased leverage, Safeway's also altered managerial ownership, board composition, and executive compensation, while Kroger's did not. My analysis suggests that these differences in organizational form lead to large differences in post-HLT restructuring actions and value creation. I conclude that the improved incentive structure and increased monitoring provided by the LBO specialist at Safeway lead managers to generate cash in a more productive manner than the organizational structure employed by Kroger.