Series 79 practice questionmediumManagement Buyouts
In a management buyout (MBO), which of the following best describes the role of a special committee of independent directors?
- AIt prepares the company's financial statements for the transaction.
- BIt negotiates the financing terms with lenders.
- CIt evaluates the fairness of the transaction and negotiates on behalf of public shareholders.✓ Correct answer
- DIt is responsible for filing SEC forms related to the MBO.
Explanation
Why C — It evaluates the fairness of the transaction and negotiates on behalf of public shareholders.
A special committee of independent directors is typically formed in an MBO to evaluate the proposal and negotiate to protect minority shareholders. This mitigates inherent conflicts of interest since management is both buyer and seller. Confusing this committee with routine management or regulatory roles is a common trap.
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