KARACHI, Feb 11: Reckitt Benckiser Pakistan Limited announced on Tuesday that it would re-purchase a maximum of four million of its own shares at Rs90 per share.

The shareholders had authorized the repurchase of its own issued ordinary shares at an extraordinary general meeting held on January 30. The company on Tuesday invited tender offers from its members for the sale to and purchase by the company maximum of four million shares of the nominal value of Rs10 each in the capital of the company.

With no right or bonus issues, the company's paid-up capital has remained unchanged at Rs320.6 million for the last many years. Like most multi-national blue chips, the Reckitt stock is illiquid.

At the last count on December 2002, the controlling 58.11 per cent shares were vested in the holding company: Reckitt Benckiser plc, UK, and its nominees. The four-million shares would measure up to 12.5pc of company's outstanding stock.

The price of the 10-rupee share in Reckitt Benckiser has galvanized 112 per cent from around Rs40 in January 2003 to Rs85, currently. The repurchase price of Rs90 offered by the company is slightly higher than the market value.

But the invitation of tender offer stipulated as one of the condition: "Where the purchase price offered exceeds Rs90 per share, all such offers will be rejected.

In the case of all other offers, the company will first accept those offering the lowest purchase price and then the next lowest price until the maximum number of shares to be purchased are accepted."

For the repurchase of four million shares at Rs90 the company would require to pay Rs360m. The sum would possibly be tapped from un-appropriated profit. But the repurchase of its own shares by corporates, ought not to be confused with the purchase of minority shareholdings by the sponsors of companies. Such buy-back by companies and their eventual de-listing, particularly, the lame ducks, have been plentiful.

The Securities and Exchange Commission of Pakistan (SECP) had issued the Companies (buy-back of shares) Rules, 1999 on December 14, 1999, that lays down in great detail the regulations and procedures that are required to be followed by corporates in repurchase of shares. Such repurchases are also called 'treasury stock'.

When the rules were first issued, many people believed that big corporations with heaps of spare cash would line up for 'treasury stocks'. But more than four years since the buy-back rules were first issued, only a few companies have come up with such offers.

The first such offer was made a couple of years ago by Alhamd Textile Mills Limited - a little known textile spinning mill at Multan. It offered to re-purchase shares, paying Rs21 for the stock that carried the market value of only Rs4.70.

Corporations in developed world, frequently reacquire shares of their own capital stock by purchase in the open market. Paying out cash to reacquire shares reduces the assets of the corporation and decrease the shareholders' equity by the same amount. The repurchase of shares also results in increased earning per share in the future.

In the tender offer floated on Tuesday, Reckitt clarified that the authority granted was valid for a period of four months from the date of the Extraordinary General Meeting held on January 30.

The company stated that offers must be submitted to any of the designated branches of the authorized bank no later than March 24, after which offers would not be entertained by the company.

Reckitt Benckiser has been in operation in Pakistan for well over half a century. But up until the year 2000, the company operated under the name of Reckitt & Colman of Pakistan Limited.

In the past five years, this fast moving consumer goods company (FMCG) appears to have made considerable progress so that the loss of staggering sum of Rs213 million that it had suffered in 1999 (the first deficit ever encountered by the company) seem all but a distant nightmare.

For the year ended December 31, 2002, the company had posted pre-tax profit of Rs272.2m which represented improvement over the earlier year's pre-tax profit at Rs144.1m. After tax profit rose to Rs166.2m from Rs79.1m the previous year.