What is an Accelerated Share Repurchase (ASR) agreement?

An Accelerated Share Repurchase (ASR) agreement is a transaction where a company buys back its own stock from a financial institution (in this case, Credit Suisse) through an intermediary. The company pays a fixed price upfront, and the financial institution agrees to repurchase the shares on the open market over a period. The final price might be adjusted based on the average market price during the repurchase period, with potential for a cash settlement or issuance of additional shares.

Why is Northrop Grumman engaging in share repurchases?

Northrop Grumman is engaging in share repurchases as part of its strategy to return capital to its shareholders. These buybacks can increase earnings per share (EPS) and signal management's confidence in the company's financial health and stock valuation.

How is the $600 million ASR being funded?

The $600 million ASR agreement is being funded through a combination of the company's existing cash resources and a $350 million draw from its credit facility. This draw is a short-term borrowing with a maturity date of March 27, 2007.

What is the total amount authorized for share repurchases after this ASR?

Prior to the announcement of this $600 million ASR, the company had $1.176 billion remaining under its previously announced repurchase programs. This ASR adds significantly to the capital being returned to shareholders.

NOC 8-K: Material Agreements & Financial Events

Summary

Northrop Grumman Corporation (NOC) announced on February 21, 2007, its entry into a $600 million accelerated share repurchase (ASR) agreement with Credit Suisse. This ASR is part of the company's ongoing commitment to returning capital to shareholders, supplementing previously announced stock repurchase programs totaling $1.176 billion authorized prior to this announcement. The ASR agreement will result in the repurchase of 7,969,185 shares of common stock at a fixed price. The company will also draw $350 million under its existing credit facility to help fund this transaction, with the repayment due on March 27, 2007. This action indicates management's confidence in the company's financial position and its stock value.

Key Highlights

1Entered into a $600 million Accelerated Share Repurchase (ASR) agreement with Credit Suisse.
2The ASR will repurchase approximately 7.97 million shares of common stock.
3This repurchase is in addition to existing authorized share repurchase programs.
4The company will draw $350 million under its existing credit facility to partially fund the ASR.
5The borrowed amount under the credit facility matures on March 27, 2007.
6The ASR is consistent with Northrop Grumman's strategy of returning capital to shareholders.
7This action suggests management's belief that the company's stock is undervalued.

NORTHROP GRUMMAN CORP /DE/ 8-K Report, Material Agreement (Feb 22, 2007)

Summary

Key Highlights

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