This refers to the control of a company passing to the employees, who purchase either individually or through an employee trust a controlling interest in a company’s equity share capital. Although it could happen by gradual acquisition of shares through employee share schemes and/or market purchases, such a manner of taking control is unlikely and is not what is generally meant by the term employee buyout. Such a buy-out is frequently inspired by the desire of the workforce to protect employment threatened by the possible closing down of the business by management. The employees acting in concert and with private or public financial backing offer a better price than would be obtained by better price than would be obtained by accepted then control passes to them.
An employee buy-out also might occur indirectly on the occasion of the privatization by the government of an industry where the existing employees are given prior right to subscribe for the shares and act in concert to purchase all shares on issue or sufficient to give themselves a controlling interest. This happened when the National Freight Corporation was denationalized. It was transformed to an employee-controlled company, the National Freight Consortium.
Reference: The Penguin Business Dictionary, 3rd edt.