RJR Plans $1-Billion Buyback

RJR Nabisco Inc., awash with profits from its cigarette and consumer products units, said Monday that its board approved a plan to buy back more than $1 billion of its own shares.

The company said it will hold a tender offer for up to 20 million shares at a price of not less than $52, nor more than $58, per share in cash.

The offer is valued at somewhere between $1.04 billion and $1.16 billion, depending on the price eventually paid.

A spokesman explained that the company believes its stock to be “an excellent investment.” The self tender would also “increase the value of the remaining shares.”

Cigarette companies, with an immense cash flow and relatively low stock prices, are traditionally heavy share repurchasers. However, after its $4.9-billion acquisition of Nabisco Brands Inc., RJR slowed the pace of its share buybacks substantially.

The company earned $1.21 billion last year, a strong gain from the $1.07 billion the year before, while making no major acquisition.

Share repurchases raise earnings per share, because there are fewer shares outstanding afterward, and tend to boost stock prices by making them scarcer on the open market. Companies undertake such plans to prop up their share prices, invest extra funds or reduce the amount of equity on their balance sheets.

The company said the exact price of the buyback will be determined by a Dutch auction. Under such procedures, shareholders list the price at which they will sell their shares and the company determines which offers it will accept.

RJR Nabisco also said it concluded a previously announced open market purchase program of 4,100,000 shares. As of March, 1988, RJR Nabisco had 249,865,000 shares outstanding.