Employee Buyout - EBO

There are two types of employee buyout. One represents employees taking control of a company. Another runs with employees not being employees any longer. Kind of the Dr. Jekyll and Mr. Hyde of finance.

In the first type, a group of employees pool their resources (and probably borrow money) to buy a majority ownership in the company they work for. Usually, this bet involves management taking control of a struggling company.

In the second form of employee buyout, staff levels are cut by offering certain workers a bunch of money to...go away. This usually happens in situations where a group of employees operate under a union contract (so that firing them outright is difficult) or if certain individuals have a contract that prevents them from being cut (you might notice this happen to your favorite sports team...we're looking at you, Carmelo Anthony).

The company then offers a severance package to entice employees to walk away. The employees can then bank the money and move onto another job (or take up fishing, etc., depending on their personal situation). Meanwhile, the company suffers through a large expense in the near term, but lowers its operating costs moving forward. The hope is that the firm will make up the money in the long run.

See: MBO. See: Management Buyout. See: LBO. See: Leveraged Buyout.