As more companies resume stock buybacks, some treasurers are feeling pressure to use ASRs.
Corporates eager to send a clear signal to investors about their financial health are brushing the dust off stock buyback plans and weighing—if not committing to—accelerated share repurchase (ASR) programs. That was among the takeaways from a NeuGroup meeting of treasurers this week.
- It’s the latest development in a journey that began in the spring when the pandemic slammed the brakes on many share repurchase programs. In the fall, some companies got more confident about the future and returned to doing buybacks, often opting for the flexibility and relatively lower profile offered by open market repurchases (OMRs).
- Corporates that opt for ASRs have to make a firm commitment to the program but may benefit by sending a stronger message to the market, members agreed.
Time for ASRs? One member, whose company has performed well in the pandemic, has an influx of cash and is restarting a repurchase program, said he is feeling some pressure to use ASRs, not his preferred method.
- Another member with experience using ASRs said his goal as treasurer is to be opportunistic and “take whatever the board offers me to spend in buybacks, and buy back as many shares as I possibly can.” That means using ASRs, which offer corporates a way to buy shares at a discount to market prices, unlike an OMR.
- The member said he essentially uses ASRs as a volatility hedge. “In a period of high volatility that we don’t think or aren’t sure is going to continue, we can lock it in with the ASR,” he said.
- “On the back of that, we put a price grid in,” he said. This allows the company to purchase even more if there’s a significant decline in the share price.
Playing it safe. The commitment inherent in ASRs can come back to bite. The member noted another company’s recent experience going “pretty big” with an ASR and seeing huge run-up in the stock price, which will be factored into the price per share they will ultimately pay.
- He warned others to stay short on the strategy. “We typically don’t go out more than a couple months, because we don’t like the uncertainty out there,” he said.
- A member who is currently using an ASR program added, “The ASRs we engage on are only within the quarter, shorter in tenor and smaller in size than OMRs.”