Accelerated Share Repurchase
- Accelerated Share Repurchase
Accelerated Share Repurchase (ASR) refers to a method that publicly traded companies may use to buy back shares of its stock from the market.
The ASR method involves the company buying its shares from an investment bank (who in turn borrowed them from their clients) and paying cash to the investment bank while entering into a forward contract. The investment bank will then seek to purchase shares of the company from the market to return to its clients. At the end of the transaction, the company may receive even more shares than it initially received, which are then retired. [ [http://www.cfo.com/article.cfm/9748271 Banks Back Buyback Boom - Capital Markets - CFO.com ] ]
This method can be contrasted with a typical open market repurchase, where the company simply announces that it is repurchasing shares on the market, and then does so.
A firm might choose the ASR method as a way of reducing the number of shares outstanding for a fixed cost, transferring the risk to the investment bank (which is now short the stock) for a negotiated premium.
By purchasing the shares in this way, it immediately exchanges a fixed amount of money for shares of its stock. It is currently being theorized that such arrangements are used by management to manipulate earnings figures for incentive compensation and reporting reasons. [ [http://www.nd.edu/~carecob/Workshops/MarquardtPaper.pdf Managing EPS Through Accelerated Share Repurchases: ] ]
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