RJR Reports Higher Profit : KKR Agrees to Sell Some Lines

Kohlberg Kravis Roberts & Co., moving closer to approval of its record-breaking, $24.5-billion takeover of RJR Nabisco, said Monday that it has tentatively agreed with antitrust officials to sell off some duplicate brands.

Under the preliminary agreement, either RJR Nabisco or Beatrice Cos., of which KKR controls about 90%, would sell off its brand in several product categories: ketchup, packaged nuts and Oriental entrees, noodles, vegetables and soy sauce.

RJR Nabisco, based in Atlanta, makes Del Monte ketchup, Planters peanuts and Oriental products under the Chun King name. Chicago-based Beatrice owns Hunt’s ketchup, Fisher nuts and LaChoy.

The preliminary agreement was reached with staff members of the Federal Trade Commission. The full commission is expected to rule on the matter in the next few days.

One professor of economics described the accord as an example of the government’s “swallowing the camel and straining at the gnats.”

“Here you have two of the biggest food and beverage companies . . . merging, and the government boldly chases cashew nuts,” said James W. Brock, who teaches at Miami University of Ohio and is co-author of a 1987 book on antitrust and competition called “The Bigness Complex.”

Industry observers speculated that any sales of product lines, which KKR would be required to make within a year, ultimately might mean that entire units would be sold. In fact, KKR has already acknowledged that it expects to sell $6 billion of RJR food operations during the next two years.

“You can’t just sell the Del Monte ketchup label and continue to support Del Monte canned fruit,” said Stephen M. Carnes, a food industry analyst with the Minneapolis investment firm of Piper Jaffray Inc. “So if you’re going to sell Del Monte or Hunt’s, you will have to sell the whole brand.”

Could Realize $700 Million

Carnes speculated that the sales of three lines such as Del Monte, Chun King and Planters might garner KKR $500 million to $700 million.

Bob McCready, director of the brand identity group for Landor Associates, a San Francisco consultant, speculated that KKR would sell Fisher rather than Planters because the Planters name is better known among consumers and is associated with a broader product line.

Similarly, he said, the Del Monte name “logically could be extended into several additional categories, (whereas) Hunt’s to most people basically means tomato products.” Since Del Monte already markets foods such as fruit, pickles and snacks, KKR “would be reluctant to lose a piece of the line.”

Further, he said, Chun King might more logically be divested because Beatrice already sold the frozen food chunk of that line to ConAgra.

Separately, RJR Nabisco Inc., reporting annual earnings as a public company for what is expected to be the last time, said Monday that its net income rose for the fourth quarter and the year despite high costs related to its takeover.

For 1988, earnings climbed 15% to $1.4 billion. They were reduced by about $100 million for advisory fees and other expenses related to the buyout. Sales rose 8% to $17 billion.

The quarter’s net income rose 11% to $411 million, and sales rose to $4.7 billion from $4.4 billion.

Excluding increased tax provisions and expenses related to the merger, fourth-quarter net income would have been $539 million. The company said special tax charges for foreign operations also reduced the year-end earnings.

Despite declines in smoking in the United States, the company’s tobacco business remained highly profitable because of higher retail prices for cigarettes and strong foreign sales.

Los Angeles Times