9. Common stock
Accelerated share repurchases. On December 9, 2013, as part of our 2013 Share Repurchase Program (as defined below), we entered into an agreement to repurchase shares of our common stock for an aggregate purchase price of $1,500.0 million (the “2013 ASR Program”) under an Accelerated Share Repurchase agreement (the “2013 ASR Agreement”). Under the terms of the 2013 ASR Agreement, upon payment of the purchase price, we received an initial delivery of 20.1 million shares of our common stock at a price of $67.16 per share, which represents, based on the closing share price of our common stock on Nasdaq on December 9, 2013, approximately 90% of the $1,500.0 million amount of the 2013 ASR Program. The final purchase price per share (the “forward price”) and the final number of shares received will be determined using the arithmetic mean of the daily volume-weighted average price of the Company’s common stock (the “VWAP”) over the term of the 2013 ASR Program less a discount granted under the ASR Agreement. The 2013 ASR Program will be completed in the second quarter of 2014, subject to the right of the investment bank to accelerate the settlement of the program.
Upon settlement of the 2013 ASR Program we may receive additional shares, including for the remaining 10% of the $1,500.0 million amount of the 2013 ASR Program, or we may be required to pay additional cash for the initial shares received or re-deliver shares (at our option), based on the forward price beginning after the effective date of the 2013 ASR Agreement and ending on or about May 5, 2014, subject to the right of the investment bank to accelerate settlement of the 2013 ASR Agreement. Under the terms of the contract, the maximum number of shares that could be delivered by us under the contract is 44.7 million. If the 2013 ASR Program had been settled as of December 31, 2013, based on the VWAP since the effective date of the agreement, the investment bank would have been required to deliver an additional 2.3 million shares to us. These shares are not included in the calculation of diluted weighted-average common shares outstanding during the period because their effect was anti-dilutive.
The 2013 ASR Agreement is accounted for as an initial treasury stock transaction and a forward stock purchase contract. We recorded this transaction as an increase to treasury stock of $1,350.1 million, and recorded the remaining $149.9 million as a decrease to additional paid-in capital in the consolidated balance sheet at December 31, 2013. The $149.9 million recorded in additional paid-in capital will be reclassified to treasury stock upon completion of the 2013 ASR Program. The forward stock purchase contract is classified as an equity instrument under applicable accounting guidance and was deemed to have a fair value of zero at the effective date of the 2013 ASR Agreement. The initial delivery of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted net income per share on the effective date of the 2013 ASR Agreement.
On May 27, 2011, ESI entered into agreements to repurchase shares of its common stock for an aggregate purchase price of $1,750.0 million under an Accelerated Share Repurchase agreement (“2011 ASR Agreement”). The 2011 ASR Agreement consisted of two agreements, providing for the repurchase of shares of ESI’s common stock worth $1,000.0 million and $750.0 million, respectively. Upon payment of the purchase price on May 27, 2011, ESI received 29.4 million shares of ESI’s common stock at a price of $59.53 per share. During the third quarter of 2011, ESI settled the $1,000.0 million portion of the 2011 ASR Agreement and received 1.9 million shares at a final forward price of $53.51 per share. During the fourth quarter of 2011, ESI settled $725.0 million of the $750.0 million portion of the 2011 ASR Agreement and received 2.1 million shares at a weighted-average final forward price of $50.69. On April 27, 2012, ESI settled the remaining portion of the 2011 ASR Agreement and received 0.1 million additional shares, resulting in a total of 33.5 million shares received under the 2011 ASR Agreement.
The 2011 ASR Agreement was accounted for as an initial treasury stock transaction and a forward stock purchase contract. The forward stock purchase contract was classified as an equity instrument under applicable accounting guidance and was deemed to have a fair value of zero at the effective date. The initial repurchase of shares resulted in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted net income per share on the effective date of the agreements. The remaining 4.0 million shares and 0.1 million shares received for the portions of the 2011 ASR Agreement that were settled during 2011 and 2012, respectively, reduced weighted-average common shares outstanding for the years ended December 31, 2011 and 2012, respectively.
Treasury share repurchases. Upon consummation of the Merger on April 2, 2012, all ESI shares held in treasury were no longer outstanding and were cancelled and retired and ceased to exist. Express Scripts eliminated the value of treasury shares, at cost, immediately prior to the Merger as a reduction to retained earnings and paid-in capital.
On March 6, 2013, the Board of Directors of Express Scripts approved a share repurchase program (the “2013 Share Repurchase Program”), authorizing the repurchase of up to 75.0 million shares (as adjusted for any subsequent stock split, stock dividend or similar transaction) of the Company’s common stock. There is no limit on the duration of the 2013 Share Repurchase Program.
Including the shares repurchased through the 2013 ASR Program, we repurchased 60.4 million shares for $3,905.3 million during the year ended December 31, 2013. Repurchases during the second quarter included 1.2 million shares of common stock for an aggregate purchase price of $68.4 million that were held on behalf of participants who acquired such shares upon the consummation of the Merger as a result of conversion of Medco shares previously held in Medco’s 401(k) plan. As previously announced, the Express Scripts 401(k) Plan no longer offers an investment fund option consisting solely of shares of Express Scripts common stock, and previously held shares were to be sold on or about the first anniversary of the Merger. This repurchase was not considered part of the 2013 Share Repurchase Program. As of December 31, 2013, there were 15.8 million shares remaining under the 2013 Share Repurchase Program, including shares repurchased under the 2013 ASR Program. Additional share repurchases, if any, will be made in such amounts and at such times as the Company deems appropriate based upon prevailing market and business conditions and other factors. Current year repurchases were funded through internally generated cash.
ESI had a stock repurchase program, originally announced on October 25, 1996. In addition to the shares repurchased through the 2011 ASR Agreement, ESI repurchased 13.0 million shares under its existing stock repurchase program during the second quarter of 2011 for $765.7 million.
Preferred share purchase rights. In July 2001, ESI’s Board of Directors adopted a stockholder rights plan which declared a dividend of one right for each outstanding share of ESI’s common stock. The rights plan expired on March 15, 2011 and no additional plan has been adopted by the Board of Directors.
