Accelerated Share Repurchase - ASR

So you get the share repurchase thing, right? Companies think that Wall Street is nuts to be selling their shares at some stupid low price...call it 12 bucks a share. So the company buys back its own stock. But let's say it thinks that, in a few quarters, its new product will be blammo, and its stock will be rocking again. And even though it disclosed everything to everyone, the stock, still at 12 bucks a share, is a screaming bargain buy.

So the company wants to accelerate things. And in an ASR, what happens is that the company basically advances their broker/bankers a big chunk of cash, from which the bank draws to buy back shares in bulk, with the goal of doing so...quickly. Before word of the new flying car actually working and not killing people (like it did before) gets out.

The bank then goes out into the market and just aggressively buys shares, usually at a modest premium...but then, if it turns out that the shares later sag and the bank is able to unwind some of its derivative positions, essentially making the shares cheaper to have been acquired, it then rebates, or gives to the company additional shares in the buyback. The key idea here: the size of the pie shrinks, and the volume of pie given to each shareholder for the same percentage ownership-sized slice...increases.