What is an accelerated share repurchase (ASR) program?

An accelerated share repurchase (ASR) program is an agreement where a company buys back its own stock from a financial institution (like a bank) at an agreed-upon discount. The company typically receives a substantial portion of the shares upfront, with the final amount determined later based on the average stock price over a period.

Why is Union Pacific buying back $2.0 billion in stock?

Companies typically initiate share repurchase programs when they believe their stock is undervalued, have excess cash flow, or want to return capital to shareholders. This program indicates management's confidence in Union Pacific's financial stability and future earnings potential, and it can increase earnings per share (EPS) by reducing the number of outstanding shares.

When will the full impact of this buyback be seen?

While an initial batch of shares is expected to be received on February 19, 2020, the final settlement and the precise number of shares repurchased will be determined by the end of the third quarter of 2020. Therefore, the full financial impact on metrics like EPS will be realized following this final settlement.

Are there any risks associated with this ASR program?

Yes, the primary risk is that the final number of shares repurchased is tied to the market price. If the company's stock price increases significantly during the term of the ASR, Union Pacific will receive fewer shares for its $2.0 billion than if the price had remained stable or fallen. The company also notes that forward-looking statements are subject to risks and uncertainties detailed in its SEC filings.

UNP 8-K: Regulation FD — Feb 18, 2020

Summary

Union Pacific Corporation (UNP) announced on February 18, 2020, that it has entered into accelerated share repurchase (ASR) agreements with Bank of America and JPMorgan Chase totaling $2.0 billion. This move signifies a substantial commitment by the company to return capital to shareholders. The initial delivery of shares is expected on February 19, 2020, with the final settlement anticipated before the end of the third quarter of 2020. Investors should view this ASR program as a positive signal of management's confidence in the company's financial health and future prospects. The significant repurchase amount suggests that management believes the company's stock is currently undervalued, and the buyback is expected to be accretive to earnings per share. However, investors should also be aware that the final number of shares repurchased will be dependent on the volume-weighted average price of the stock during the ASR term, with potential for early termination.

Key Highlights

1Union Pacific has entered into $2.0 billion in accelerated share repurchase (ASR) programs.
2The ASRs are with Bank of America and JPMorgan Chase.
3Approximately 8.8 million shares are expected to be received on February 19, 2020.
4The final number of shares repurchased will be based on the volume-weighted average price during the ASR term, less a discount.
5Final settlement of the ASRs is expected before the end of the third quarter of 2020.
6The company retains the option to terminate the ASRs early under certain circumstances.

UNION PACIFIC CORP 8-K Report, Regulation FD Disclosure (Feb 18, 2020)

Summary

Key Highlights

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