Explain purchase of treasury stock to fight off a takeover of the corporation
Response to the following problem:
Lucinda Lowery Exports, Inc., is located in Clancy, New Mexico. Lowery is the only company with reliable sources for its imported gifts. The company does a brisk business with specialty stores such as Neiman Marcus. Lowery's recent success has made the company a prime target for a takeover. An investment group named Alberton is attempting to buy 52% of Lowery's outstanding stock against the wishes of Lowery's board of directors. Board members are convinced that the Alberton investors would sell the most desirable pieces of the business and leave little of value. At the most recent board meeting, several suggestions were advanced to fight off the hostile takeover bid. The suggestion with the most promise is to purchase a huge quantity of treasury stock. Lowery has the cash to carry out this plan.