Final answer:
Buying back stock as treasury stock can help companies avoid hostile takeovers by reducing the number of outstanding shares available in the market. It reduces the voting power and control that outside shareholders could have over the company, making it less attractive for takeover. It can also increase the value of the remaining shares in the market, making acquiring a controlling interest more expensive.
Step-by-step explanation:
Buying back stock as treasury stock can help companies avoid hostile takeovers by reducing the number of outstanding shares available in the market. When a company repurchases its own stock, it reduces the ownership stake that is available to other shareholders. This makes it more difficult for an outside entity to acquire a controlling interest in the company and takeover its operations.
For example, if a company repurchases a significant amount of its outstanding shares and holds them as treasury stock, it effectively reduces the number of shares available for purchase by potential acquirers. This reduces the voting power and control that outside shareholders could have over the company, making it less attractive for hostile takeovers.
In addition, buying back stock can also increase the value of the remaining shares in the market. By reducing the supply of shares, the demand for the remaining shares may increase, leading to an increase in share price. This can make the company less attractive for hostile takeovers, as acquiring a controlling interest becomes more expensive.