What is an 'Accelerated Share Repurchase - ASR'

An accelerated share repurchase (ASR) is a specific method by which corporations can repurchase large blocks of their outstanding shares via an investment bank on an expedited basis. The accelerated share repurchase is usually accomplished in two steps. First, the company enters a forward sale agreement with the investment bank and pays cash upfront. Second, the investment bank borrows the shares from clients or share lenders and delivers the shares to the company, which immediately reduces outstanding share count. Over time, ranging from one day to several months, the shares are returned to these share lenders by the investment bank through purchases in the open market.

BREAKING DOWN 'Accelerated Share Repurchase - ASR'

Accelerated share repurchases allow corporations to transfer the risk of the stock buyback to the investment bank in return for a premium. The corporation is, therefore, able to immediately transfer a predetermined amount of money to the investment bank in return for its shares of stock. ASRs are often used to repurchase shares at a faster pace and reduce the amount of shares outstanding right away.

Example of an Accelerated Share Repurchase

Mosaic Co.'s 2015 Repurchase Program allows it to execute share buybacks through open market purchases, privately negotiated transactions, and accelerated share repurchase agreements. In May 2015, under the ASR, Mosaic advanced $500 million and received an initial delivery of over 8.33 million shares of common stock. When the ASR was settled two months later, Mosaic received an additional 2.77 million shares. In February 2016, it entered into another ASR contract to repurchase shares for $75 million. Management of the company was interested in reducing outstanding share count of the company in a faster way than normal periodic share buybacks in the open market. The ASR gave&certainty to the average cost of the buyback, achieved the company's goal of reducing shares outstanding within a matter of months, and simultaneously led to an immediate earnings per share (EPS) accretion (due to the lower share count).

Accounting for an ASR

Under generally accepted accounting principles (GAAP), the forward contract that a company enters into with an investment bank is considered an equity instrument. While the ASR is outstanding the value of the shares can fluctuate - if the shares increase in price, the company would assume a liability; if the price falls the company would record a receivable. However, whether an asset (payable) or liability (receivable), the change in the value of the forward sale agreement remains off balance sheet. In other words, the balance sheet does not reflect the potential asset or liability value of the ASR before the ASR settles.  

RELATED TERMS
  1. Share Purchase Rights

    A holder of share repurchase rights has the option to repurchase ...
  2. Outstanding Shares

    Outstanding shares refer to a company's stock currently held ...
  3. Buyback

    A buyback is a repurchase of outstanding shares by a company ...
  4. Expanded Share Buyback

    An expanded share buyback is an increase in a company’s existing ...
  5. Retail Repurchase Agreement

    A retail repurchase agreement is an alternative to traditional ...
  6. Leveraged Buyback

    A leveraged buyback is a corporate finance transaction that enables ...
Related Articles
  1. Investing

    The impact of share repurchases

    Share repurchases can have a significant positive impact on an investor’s portfolio and are a great way to build investor wealth over time.
  2. Investing

    Are Share Buybacks Propping Up the Market? (AAPL, MSFT)

    Companies are repurchasing their own shares at a rate not seen in nearly a decade, prompting observers to fret that demand for equities is not as strong as the past six weeks' rally would suggest.
  3. Investing

    Why Buybacks Can Be a Waste of Cash (BX, BAC)

    Learn the motivations behind share repurchase programs, including how they can mask slowing organic growth and why many companies buy their shares high and sell low.
  4. Investing

    The Share Buyback Report: The Energy Sector (XOM, CVX)

    Examine historical share repurchase data for the energy sector. Review buyback activity over time, and find out which companies return the most capital to shareholders.
  5. Investing

    Apple Bought Back $107M of Stock Daily in Past 5 Years

    The company has spent a total of $142 billion on share buybacks since 2012, according to research.
  6. Investing

    Stock buybacks: A good thing or not?

    In recent years, the value of stock buybacks has come into question. We look at the pros and cons.
  7. Investing

    How Buybacks Warp The Price-To-Book Ratio

    Relying on price-to-book can get ugly if a company has repurchased stock. Learn why.
  8. Investing

    What's Your Stock's Repurchase Premium?

    Take a closer look at your favorite stock's statement of equity; you never know what you're going to find
  9. Investing

    6 Bad Stock Buyback Scenarios

    Buying back shares can be a sensible way for companies to use extra cash. But in many cases, it's just a ploy to boost earnings.
  10. Investing

    Skyworks Announces $500 Million Stock Repurchase

    Along with a Q1 earnings beat, Skyworks announces a newly approved stock repurchase plan.
RELATED FAQS
  1. How does it affect a company's credit rating to buy back shares?

    Learn how buying back shares can negatively affect a company's credit rating if the company uses debt to finance a share ... Read Answer >>
  2. Why would a company choose to repurchase in lieu of redeem?

    Learn the difference between a stock repurchase and a stock redemption, and find out about the reasons why a company might ... Read Answer >>
  3. What is the weighted average of outstanding shares? How is it calculated?

    The weighted average of outstanding shares is a calculation that incorporates any changes in the amount of outstanding shares ... Read Answer >>
  4. What is the difference between authorized shares and outstanding shares?

    Calculating financial ratios can help investors understand a company's financial position, but only when a knowledge of various ... Read Answer >>
  5. Repo agreements versus vs. reverse repo agreements

    Learn about repurchase agreements and reverse repurchase agreements, their risks and tax implications, and where the Federal ... Read Answer >>
  6. What Is The Formula For Calculating Earnings Per Share (EPS)?

    Learn how to calculate earnings per share and why it's an important gauge in determining a stock’s value and a company's ... Read Answer >>
Hot Definitions
  1. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  2. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  3. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  4. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  5. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  6. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
Trading Center