The auction for RJR Nabisco Corp. took a startling turn Friday when it was announced that a wealthy investment group that includes consumer products powerhouse Procter & Gamble Co. is considering taking over the food and tobacco giant.
The plan was disclosed just a day after RJR Nabisco’s top managers, backed by two New York investment firms, announced a $20.75-billion bid for the company, the largest in history.
The new entrants in the high-stakes fight to take control of RJR Nabisco are being led by the Forstmann Little & Co. investment firm in New York. Other participants are Ralston Purina, Castle & Cooke Inc. of Los Angeles and the Goldman, Sachs & Co. investment firm.
The surprise move raised the prospect that RJR Nabisco will be bought by rival consumer firms that might then divide up the company’s coveted line of cookies, crackers, fruits and vegetables.
“For Procter & Gamble, this represents a possible opportunity to expand our business in a direction that is consistent with our strategy,” said Patrick Hayes, a spokesman with the Cincinnati-based maker of Ivory soap and other household products.
Hayes stressed that Procter & Gamble’s interest is limited just to food brands and that the giant firm had no interest in a taking over all of RJR Nabisco.
In a statement late Friday, buyout organizer Theodore J. Forstmann said the new group had asked to see confidential financial information about RJR Nabisco. If his group chooses to go ahead, he said, the offer would be a “superior” one.
“We are prepared to work expeditiously to attempt to develop a proposal” that would be attractive to board members, shareholders and employees, Forstmann said.
The group enters a line of potential buyers of RJR Nabisco, one of several food companies that have been besieged by buyout efforts.
In addition, Pillsbury Co. continues to wrestle with an unsought $5.23-billion buyout from London-based Grand Metropolitan PLC. And, earlier this week, Philip Morris Cos. agreed to buy Kraft Corp. for $13.1 billion.
In a time when potential mergers are fast losing their shock power, analysts nonetheless were astonished at the latest round in the RJR Nabisco bidding war.
“I’ve got to say it’s out of character for Procter & Gamble,” a normally cautious company, said Hugh S. Zurkuhlen, a food industry analyst with Salomon Bros. “This seems to be an indication that they are catching up a bit with the times.”
Stephen M. Carnes, a food analyst at Piper Jaffray investment firm in Minneapolis, noted that the potential buyers had both the resources and the motivation to enter the sweepstakes.
“They’ve got the horsepower to do it,” Carnes said. “There’s no question about that.”
May Sell Off Tobacco Unit
He added that Procter & Gamble and Ralston Purina are probably attracted to RJR Nabisco’s well-established food brand names. “Maybe the tobacco business gets sold to raise cash to fund the acquisition,” he suggested after hearing the news.
Procter & Gamble generated 1987 revenues of $19.34 billion from sales of its brand-name products, which include Tide detergent, Crest toothpaste and Pampers disposable diapers. Among its other products are Duncan Hines cake mixes, Crisco cooking oils, Citrus Hill orange juice, Folgers coffee and Crush soda.
“I think P&G; would clearly be interested in the food side of the (RJR) business,” said Zurkuhlen. “They have a $3-billion food business themselves but it’s not very profitable at all. They would add Nabisco’s management and profitability.”
Ralston Purina, a manufacturer of pet food, canned tuna and Hostess Twinkies, is based in St. Louis. Castle & Cooke is a food and real estate group.
In addition to the RJR Nabisco managers’ $20.75-billion bid for their own company, a rival investment group, Kohlberg Kravis Roberts & Co., has offered to buy the Atlanta-based conglomerate for $20.3 billion.
The management group--backed by the Shearson Lehman Hutton and Salomon Bros. investment firms--has negotiated with Kohlberg Kravis, in an effort to work out a joint takeover. The talks have broken down repeatedly, however.
Los Angeles financier-developer David Murdock is chairman of and holds a controlling interest in Castle & Cooke, which has large land holdings in California and Hawaii. It is presently building a world-class resort on the Hawaiian island of Lanai. It also owns Dole, the big fruit processor and a rival of RJR Nabisco’s Del Monte division.
Murdock’s office here said he was not available for comment Friday and no one else could speak for the company.
Staff writers Jesus Sanchez and Al Delugach contributed to this story.