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 dramat ically increased leverage, Safeway's also altered managerial ownership , board composition, and executive compensation, while Kroger's did no t. 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 increas ed monitoring provided by the LBO specialist at Safeway lead managers to generate cash in a more productive manner than the organizational s tructure employed by Kroger.