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Accelerated Share Repurchase

An accelerated share repurchase (ASR) is a strategy used by companies to quickly buy back a large number of their own shares from the market. This is done through a deal with an investment bank, which provides the shares immediately in exchange for an upfront payment. The investment bank then gradually buys the shares in the open market to settle the transaction over time. This method is often used when a company wants to show confidence in its financial health or return value to shareholders.

Example

If a company wants to repurchase $1 billion worth of its stock, it might enter into an ASR agreement with an investment bank, which immediately provides $1 billion worth of shares. The bank then buys these shares in the open market over several months.

Key points

• A quick method for companies to buy back a large number of shares.

• Often results in an immediate reduction in the number of outstanding shares.

• Can be more expensive due to the upfront payment and potential premium.

Quick Answers to Curious Questions

Companies use ASRs to quickly reduce the number of shares on the market, which can boost EPS and signal confidence to investors.

The primary risk is the potential high cost of the shares, as the company might pay a premium in exchange for the quick buyback.

In a regular buyback, the company buys shares gradually over time, while an ASR provides an immediate reduction in shares, though typically at a higher cost.