Nabisco Chief Won’t Challenge Buyout Decision : Confirms That New Owner Will Sell Off $6 Billion Worth of Food Operations

RJR Nabisco Inc.’s chief executive formally conceded defeat Friday in the record takeover brawl for the company and joined forces with the prospective new owner to reassure employees about RJR’s future.

But both also confirmed that $6 billion worth of RJR food operations would be sold during the next two years.

“As you well know, we have just concluded what has been a long, difficult and arduous process,” F. Ross Johnson said in a joint letter with Henry R. Kravis, a principal in the investment firm Kohlberg Kravis Roberts & Co.

“However, that process has ended and it is now most important that we return immediately to actively and vigorously running our business,” said the letter sent to the 120,000 employees of the food and cigarette conglomerate.

Great Flexibility

Addressing the concern of employees about their futures, the letter from Johnson and Kravis attempted to assure employees that “all of your existing health and medical plans, and all of your retirement and pension plans will continue in full force and effect.”

The letter also said Kohlberg has “great flexibility and is under no pressure to make immediate divestitures.”

Nevertheless, the letter stated, the new owner expects “that the sale of $6 billion in various food assets is likely to occur over the next 12 to 24 months.”

There was no further indication of what those assets were, but the letter told employees: “we can also assure you that there will be no mass liquidations of our assets, or any mass layoff of employees. Both our goal and commitment is to grow this company in a most responsible manner.”

Johnson was outmaneuvered by Kohlberg in a spectacular bidding war for the nation’s 19th-largest industrial company, maker of hundreds of products that range from Camel cigarettes to Oreo cookies to Triscuit snacks.

The struggle climaxed late Wednesday when RJR’s directors accepted Kohlberg’s $109-a-share, $24.5-billion package of cash and securities, the biggest takeover agreement in history.

Kohlberg won despite a seemingly higher $112-a-share, $25.2-billion package of cash and securities offered by Johnson and his financial backers, defying widespread predictions that the scrappy RJR boss would win.

The directors concluded that both offers were substantially the same and opted to go with the investment firm’s because of its established record in takeovers and its commitment to preserving as much of the company as possible, post-mortem accounts of the decision showed.

They also were said to be dismayed at the brazen greed exhibited by Johnson, who originally offered $75 a share for the company in what he admitted was a deliberate buy-low approach.

Plans Scrapped

Johnson was said to feel cheated by the board’s announcement, and his first reaction was to reiterate that he believed that his final offer was better. He also dropped hints that the battle was not over, saying he was “exploring my options.”

But the joint letter with Kravis showed he had scrapped any plans to challenge the board’s decision.

Both offers were for leveraged buyouts, a high-finance transaction in which the buyer puts up only a fraction of the purchase price and borrows the rest, repaying it with the target company’s earnings, sale of assets or both.

The highly publicized struggle focused new attention on leveraged buyouts because they saddle companies with enormous debt and often lead to their breakup. There is growing concern over whether leveraged buyouts are playing a harmful role in the economy.

Kohlberg’s takeover of RJR will more than quadruple the company’s debt to nearly $24 billion, and there has been speculation that the new owner will have to sell substantial parts of the Atlanta-based giant to service that debt.