Abrupt Pullout : Forstmann-Led Group Won’t Join Nabisco Bidding

An investment group that included some of America’s best-known consumer products companies Wednesday said it had decided not to leap into the bidding war for RJR Nabisco Co. but offered little explanation.

The abrupt withdrawal of the investors, including Procter & Gamble Co. and Ralston Purina Co., led to speculation that offers for the food and tobacco giant were not likely to escalate much higher than their current $20-billion level.

“It strikes me that reality is setting in and sanity is starting to take over,” said Neal Kaplan, an analyst with the Interstate/Johnson Lane investment firm in Charlotte, N.C. “I like it.”

Shares of RJR Nabisco slumped $4.50 to close at $84, as visions of an intensifying contest to take over the conglomerate started to fade. The company’s stock was the most active on the New York Stock Exchange, with more than 5 million shares changing hands.

The investment group was led by the New York investment firm of Forstmann Little & Co. and also included the Goldman Sachs investment firm and Castle & Cooke, owner of Dole, the big fruit processor. Less than two weeks ago, news that it had requested internal information about RJR Nabisco stirred the financial world.

But in a one-sentence announcement Wednesday, Forstmann Little said it had “ended consideration of the acquisition” and that “consistent with its investment criteria” it would not join the bidding for RJR Nabisco.

The move leaves two bids on the table for RJR Nabisco, either of which would represent the largest corporate acquisition in history by far.

A group that includes RJR Nabisco’s top managers and both the Shearson Lehman Hutton and Salomon Bros. investment firms has offered to buy the company for $20.75 billion, or $92 a share.

Put on Auction Block

In addition, the Kohlberg Kravis Roberts buyout firm seeks to take over RJR Nabisco for $20.3 billion, or $90 a share. On Wednesday, Kohlberg extended the expiration date of its bid to Dec. 5 from Nov. 25.

RJR Nabisco’s board in effect put the company on the auction block earlier this month, by requesting offers “from all credible parties.” The offers have raised the possibility that parts of RJR Nabisco--which owns a lengthy list of popular grocery brands and cigarettes--could be sold off to help pay debt incurred in a buyout.

The Forstmann-led group entered the fray just two days after the RJR Nabisco board asked for offers and excited investors by promising a proposal “of superior value” if in fact it decided to take over the company.

But that announcement was to prove highly controversial. Theodore J. Forstmann, a partner in Forstmann Little, had previously talked with the RJR Nabisco-Shearson group about joining their own effort. After he organized his separate investment group, Shearson Lehman Hutton’s chief executive, Peter A. Cohen, accused him of violating a confidentiality agreement.

Forstmann responded with his own criticisms of the management-Shearson plan, claiming that it required excessive use of high-risk, high-yield “junk bonds” and would result in “massive fees” for Shearson.

Forstmann’s effort to enter the RJR Nabisco bidding war surprised some observers, coming a week after he wrote an essay in the Wall Street Journal lamenting the “unbridled excess” in today’s financial world. Possibly anticipating criticism, he promised that RJR Nabisco shareholders would not be saddled with new debt if he arranged an offer.

Forstmann declined to be interviewed Wednesday. Asked to elaborate on why the group dropped out, Rob Shepardson, an outside spokesman for Forstmann, said: “We just can’t say anything about it.”

Patrick Hayes, a spokesman for Procter & Gamble, the Cincinnati-based maker of Ivory soap and other products, also declined to comment.