COLUMBUS, Ind.–Cummins Inc. announced on Wednesday that it has entered into an accelerated share repurchase (ASR) agreement with Goldman, Sachs & Co. LLC (GS&Co.) to repurchase $500 million of Cummins’s common stock. The ASR is part of Cummins’s previously announced share repurchase plans authorized by the Board of Directors and is consistent with the company’s plans to return 75 percent of Operating Cash Flow to shareholders in 2018.
Under the terms of the ASR agreement, Cummins will repurchase $500 million of its common stock from GS&Co., with an initial delivery of approximately three million shares based on current market prices. The final number of shares to be repurchased will be based on the volume-weighted average Cummins stock price during the term of the transaction, less a discount.
In essence, the diesel-engine manufacturer has opted to buy back its outstanding shares through a process that reduces risk to the company. In exchange for cash upfront paid to GS&Co., Cummins will acquire all outstanding stock. One reason a company might undertake this effort would be to drive up demand for the stock if a company feels it is undervalued at the time.