An Accelerated Share Repurchase (ASR) is a method by which companies can buy back a significant amount of their outstanding shares with the help of an investment bank.
By enlisting the help of an investment bank to accelerate a buy-back, a company can cleanly retire a large bulk of shares at once. These agreements have come into use in the last 10 years, and there is of course some variation in their composition. They fall under a category of buybacks known as structured buybacks.
In general, a company will enter into an accelerated repurchase agreement with an investment bank, and the investment bank will help facilitate the buyback by immediately delivering the number of shares requested to the company at the outset of the agreement. This allows the company to retire the desired number of shares very quickly.
The investment bank, meanwhile, has borrowed many of the shares delivered to the company in a short-selling agreement with investors. The investment bank will cover its short positions by buying shares on the market and returning them to the shorted accounts.
The cost to the company who repurchased shares will add up over this time period, subject to the terms of the agreement with the bank, and they will settle when all of the shorted shares have been accounted for, generally.
Some people have spouted off that these are a way for companies to buy dips in their own stock, but they do not realize that the company will probably end up paying more this way than in a regular stock buyback program. They will pay a premium for the help of the investment bank and the ability to retire a set number of shares quickly.
Retiring shares can be a way to counteract dilutive effects of exercised stock options, or to raise the earnings-per-share of their stock, or other reasons.
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