Accelerated Share Repurchase (ASR)
What Is an Accelerated Share Repurchase (ASR)?
An accelerated share repurchase (ASR) is an investment strategy where a public corporation quickly buys back large blocks of its outstanding shares from the market by depending on a go-between investment bank to work with the deal. To start such a campaign, a company must initially outfit upfront cash to the investment bank. It must then go into a forward contract, which is just an agreement between two gatherings to purchase or sell a security sometime not too far off.
The investment bank, thusly, acquires shares of the company, normally from [institutional investors](/institutionalinvestor, for example, mutual funds, insurance companies, and pension funds. The investment bank consequently channels those shares back to the company being referred to. Companies normally take part in accelerated share repurchase (ASR) programs when they accept their stock shares are undervalued in light of the fact that this cycle will in general eventually swell the stock's value.
How an Accelerated Share Repurchase (ASR) Works
Consider an effective company that desires to rapidly reduce the number of outstanding shares floating around in the open market. Assuming that company took the traditional route of occasionally executing direct share buybacks, the price it would pay per share would shift, contingent upon the day it bought back shares.
Moreover, share buyback programs can find opportunity to complete. As indicated by the Securities and Exchange Commission (SEC), in the event that the company makes a tender offer to its shareholders to buy back shares, it must keep the offer open for something like 20 business days after it starts.
However, on the off chance that the company rather depended on an accelerated share repurchase program to eat up a bundle of stocks at the same time, by buying those shares from an investment bank intermediary, the company and the bank could direct the terms in a manner that mutually benefits the two players. This method reduces a portion of the pricing vulnerabilities for the company while permitting the bank to pocket attractive fees. Yet, the bank faces a degree of risk, in that it can never make certain of the price it will actually want to command while exchanging shares back to investors.
Benefits of an Accelerated Share Repurchase (ASR)
To investors, stock buyback occasions demonstrate that the company has adequate cash close by, which it will use to reward shareholders. Therefore, accelerated share repurchase programs generally benefit participating investors in light of multiple factors.
To start with, the completion of this cycle can drastically reduce the outstanding shares in the world, which spikes the earnings per share (EPS) of stock still in circulation. Second, the price of the stock ought to hypothetically start rising on the grounds that the stock turns out to be more appealing to investors, accordingly expanding demand.
A stock buyback benefits investors in light of the fact that the reduced number of shares outstanding normally increases share price over the long run.
Accelerated share repurchase programs don't just raise a stock price. They additionally enable companies to consolidate ownership quickly. Basically: with each share of stock a company issues, it must in like manner broaden an ownership stake in the business to the shareholder who made the investment. This really allows investors to influence a company's financial and business choices. However, by discouraging the number of shares outstanding, the company can enhance its control while taking key strategic actions.
Illustration of an Accelerated Share Repurchase (ASR)
On Aug. 19, 2020, Intel Corporation announced it was going into accelerated share repurchase agreements to repurchase $10 billion of its common stock. International banking group BNP Paribas Securities Corp. gone about as the organizing adviser to Intel on the ASR agreements.
As indicated by the terms of the ASR agreements, Intel agreed to receive around 166 million shares initially. The total number of shares to be repurchased by the company would be founded on the volume-weighted average price (VWAP) of the company's common stock during the term of the agreements. This would be subject to adjustments and a discount. The last settlement would happen toward the finish of 2020.
As indicated by Intel CEO Bob Swan, a key driver for the share repurchase was the company's conviction that the shares were trading great below their intrinsic valuation. Strong operating outcomes in 2020 implied the company could fund the share repurchases with existing cash, permitting the company to return capital to stockholders through the repurchases and through dividends also.
- An ASR program can likewise help a company rapidly consolidate its ownership, making it more straightforward for the company to take key strategic actions.
- ASR programs frequently benefit investors by causing an increase in the earnings per share (EPS) of the stock still in circulation.
- Companies ordinarily participate in accelerated share repurchase (ASR) programs when they accept their stock shares are undervalued.
- An accelerated share repurchase (ASR) is the point at which a public corporation buys back large blocks of its outstanding shares utilizing an investment bank to work with the deal.