What is an Accelerated Share Buyback (ASB)?

An Accelerated Share Buyback is a transaction where a company buys back a significant amount of its own stock from a financial institution. The company typically pays the full amount upfront, and the financial institution delivers shares immediately. The final number of shares repurchased is then determined later, based on the market's average stock price over a specified period, providing the company with certainty on the total cash outflow while allowing for potential adjustments in the share count.

Why is McKesson repurchasing its stock?

McKesson is repurchasing its stock as part of a broader strategy authorized by its Board of Directors, indicating a belief that the company's shares are undervalued or as a way to return capital to shareholders. This specific buyback also supports their fiscal year 2011 earnings guidance by reducing the number of outstanding shares.

How will this affect McKesson's share count and earnings per share (EPS)?

The repurchase of $1 billion worth of shares will reduce the total number of outstanding shares. This reduction, all else being equal, is generally expected to increase Earnings Per Share (EPS) because the same net income will be divided by a smaller number of shares. The company has indicated this aligns with its FY2011 guidance for approximately 267 million weighted average diluted shares.

What is the remaining capacity under McKesson's share repurchase program?

The company had an authorization for up to approximately $1.5 billion in share repurchases. After accounting for the $1 billion accelerated share buyback, McKesson expects to have approximately $500 million remaining under this program.

MCK 8-K SEC Disclosure — May 18, 2010

Summary

McKesson Corporation (MCK) announced on May 17, 2010, that it has entered into an accelerated share buyback (ASB) agreement with a financial institution to repurchase $1 billion of its common stock. The company expects to pay $1 billion in cash on May 20, 2010, and will receive an initial delivery of shares, with the final number of shares subject to adjustment based on the volume-weighted average price during the buyback period, which is expected to conclude by October 2010. This significant repurchase initiative is part of a previously authorized program allowing for up to $1.5 billion in share repurchases. Following this transaction, McKesson anticipates having approximately $500 million remaining under its total repurchase authorization. The ASB is also aligned with the company's previously issued fiscal year 2011 guidance, which projected approximately 267 million weighted average diluted shares.

Key Highlights

1McKesson entered into a $1 billion accelerated share buyback (ASB) agreement.
2The transaction is expected to be funded by $1 billion in cash from available reserves.
3The final number of shares repurchased will be determined by the volume-weighted average price of MCK stock during the ASB period.
4The ASB agreement is expected to be completed by October 2010.
5This buyback is part of a larger, previously authorized $1.5 billion share repurchase program.
6Approximately $500 million will remain under the total repurchase authorization after this ASB.
7The ASB supports the company's fiscal year 2011 guidance regarding diluted share count (estimated at 267 million).

MCKESSON CORP 8-K Report, Corporate Update (May 18, 2010)

Summary

Key Highlights

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