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Hi all,
I'm just reading Greenblatt's book and am interested in trying out its strategies, but I'm having allittle trouble with understanding how leverage helps with returns. I understand that If a company takes on alot of debt, and uses that debt to fund its business, its returns are leveraged in the same way mine are when I buy on margin. However, if I understand what going on correctly in the spinoff situations, the spinoff company is taking on alot of debt, but giving the money to the parent company. So it seems like the spin off should be stuck with a bill and none of the benefits, while the parent company gets a huge boost of free capital and a temporarily very low WACC.

The only thing I can think of is that, if you buy a company with alot of junk debt, paying down the junk debt can produce better returns that using the debt on your business, since the payments on the junk debt are so high.
thanks in advance.
MAC
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