I am aware of a company that is publicly known to be the subject of a buy-out offer and likely believes it may be the target of a hostile takover bid in the near future.
The company cuts at least one benefit from their employee benefits package.
The company also clamps down on spending and takes steps to defer certain expenditures to later months or years.
Why would a company likely choose to do this?
Boosting achieved price in case of buy-out?
Hoarding cash to fight the takeover?
I would guess that it is to boost the selling price. The lower your expenses, the higher your income and the more value you can claim. Bigger profit is more likely to increase stock price and since takeovers like that are typically done by a major stock buyout you want that price as high as possible.
Cut Costs = Boost Profits.
Sale price is generally based on profitability.
I worked for a well known company* a number of years ago. We got a new CEO (a whole nother story about him) who aggressively cut costs with monthly layoffs. Drove the stock price through the roof.
Eventually he sucked enough money out of the company with this stock options and departed for reasons I won’t go into here.
About a year after he left, the new CEO had to apologize to the customer base for the company’s lack of people skills, among other things.
- You have probably never heard of the company, but you’ve certainly heard of the company’s #1 product.
The bottom line is that it is a short-term thing designed to make the company look more attractive than it is. Like a person dressing up, losing weight and getting a make-over in order to be more attractive in the dating pool.
That’s not a bad comparison, except that dressing up, losing excess weight, and getting a makeover don’t impair your long-term health. The corporate behaviour is more like liposucting parts of your internal organs to lose weight. Sure, you might look ‘good’ for a while…