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.

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.

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 the 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).

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.