Chegg Inc., an education company, announced on Friday that it has entered into a new $150 million accelerated share repurchase agreement (ASR) with JP Morgan and National Association. The ASR involves an initial payment of $150 million from Chegg to the two parties, and an initial delivery of approximately 7.6 million shares of Chegg’s common stock by February 24th. The final number of shares to be repurchased will be determined by the volume-weighted average price of Chegg’s common stock during the term of the ASR, minus a discount. The final settlement is expected to be completed by the second quarter.
In response to the news, Chegg’s stock was up about 1% in premarket trading. However, the stock has fallen 49% in the last 12 months, while the S&P 500 has fallen 6%. This news of the ASR comes at a time when Chegg’s stock has been struggling.
Chegg’s decision to enter into an ASR is a strategic move to repurchase its own stock, and thereby increase its earnings per share. By repurchasing its own stock, Chegg is effectively increasing the value of its shares, and consequently, the value of its company. When a company repurchases its own stock, it reduces the number of shares outstanding and increases the demand for the remaining shares. This, in turn, increases the company’s earnings per share, as the same amount of profits are now spread out over fewer shares.
The ASR also serves as a signal to investors that the company is confident in its future prospects. By committing to repurchase its own stock, Chegg is demonstrating to the market that it believes its stock is undervalued and that it is confident that its stock price will increase in the future. This is a positive signal to investors, as it shows that the company is willing to invest in itself and believes that its stock is a good investment.
The ASR is also beneficial to Chegg’s shareholders. By repurchasing its own stock, Chegg is effectively returning capital to its shareholders, as the repurchased shares are cancelled and no longer outstanding. This reduces the total number of shares outstanding, which increases the value of each remaining share.
Overall, Chegg’s decision to enter into an ASR is a strategic move that could have a positive impact on the company’s stock price. By repurchasing its own stock, Chegg is increasing the value of its shares, signaling confidence in its future prospects, and returning capital to its shareholders. This could be a smart move for Chegg in the long run, as the repurchased shares could be worth more in the future.
