What Is an Accelerated Share Repurchase?

Understanding accelerated share repurchases

Many companies approve share repurchase programs to buy back their shares over a specified period, usually a year or more. That allows them to steadily repurchase shares on the open market without meaningfully affecting the share price.

An accelerated share repurchase speeds up this process. A publicly traded company will hire an investment bank to quickly repurchase large blocks of its outstanding shares. It will make an upfront cash payment to the bank, which agrees to deliver shares to the company by a specified date. An ASR enables a company to quickly buy back a number of its outstanding shares. A company typically approves an ASR when management believes its shares trade at a discounted valuation.

How accelerated share repurchases work

Traditional share repurchase programs take time to complete. During that time, a company's share price can move significantly, so a company that wants to repurchase shares can't always get its desired price for the stock.

An accelerated share repurchase program allows a company to expedite a buyback. The company will hire a bank to facilitate the repurchase of a specific amount of shares, which it will pay for upfront. The bank will then borrow shares from institutional investors like pension funds, mutual funds, and insurance companies, effectively shorting the stock. It will send those shares to the company. The bank will subsequently buy shares on the open market and cover its short position by returning the borrowed shares.

It often takes time to finalize an ASR. An investment bank will usually deliver most of the shares immediately. However, it will often take a few weeks or months to complete the transaction and hand the remaining shares to the company. The investment bank will either get paid a set fee for facilitating the ASR or will get to keep some of the stock it obtained for its client as payment.

The benefits of an accelerated share repurchase

Accelerated share repurchases have many benefits for a company and its investors, including:

• Quickly returning excess cash to shareholders.
• Swiftly capitalizing on an undervalued share price.
• Buying back a meaningful block of outstanding shares at a set price.
• Delivering a significant reduction in outstanding shares, which can lead to a noticeable increase in earnings per share.
• Providing a lift to the share price.

Accelerated share repurchase example

Utility Consolidated Edison (ED -1.67%) sold its clean energy business for $6.8 billion in cash in early 2023. Shortly after closing that deal, the company launched a $1 billion ASR with two dealers. Under the terms of the agreement, the company made $1 billion in payments to those dealers and received 8.7 million of its shares that same day.

The dealers will base the final number of shares repurchased on the volume-weighed average price (VWAP) of the stock during the term, minus a discount. Consolidated Edison anticipates the final settlement will occur by the third quarter of 2023. The ASR enabled Consolidated Edison to quickly return some of the cash proceeds from its clean energy business divestiture to investors by repurchasing shares.