On the face of it, the Canadian financier Robert Campeau's 1989 hostile takeover of Federated Department Stores appeared to be just as Fortune described it: one of the “looniest deals” of the 1980s. When Campeau first set his sights on Federated it was a lumbering retail giant, a bloated corporation suffering from a gross excess of capacity and ripe for efficiency improvements. Campeau financed a takeover of Federated for $7.67 billion, nearly double its market value – with 97 percent leverage. Within months, the company was in distress, its cash flows insufficient to meet its debt payments. In 1990, the company filed for bankruptcy. Overpriced and badly structured, the Federated buyout came to symbolize the folly of leverage in an overheated market for corporate assets. Perhaps so; but behind Campeau's failure lurked another, brighter story.

While Federated was struggling to meet its debt payments, the financial economist Steven Kaplan was tracking the company's fortunes from his office at the University of Chicago. Examining the data, Kaplan spotted something remarkable: when it went into bankruptcy, Federated appeared to be a better company than it had been before its acquisition by Campeau.