Merger, Smokeless Cigarette Erode RJR Nabisco’s Net
RJR Nabisco Inc. reported a 62% drop in first-quarter net income Thursday, blaming the decline on the costs of its takeover by Kohlberg Kravis Roberts Inc. and the failure of its smokeless cigarette.
The company reported net income of $103 million, down from $273 million in the same quarter a year ago, and earnings per share of 44 cents, down from $1.09 in the first quarter of 1988.
Sales in the quarter were up 5%, to $4 billion from $3.8 billion in 1988.
Without the merger-related costs and a charge for the discontinued test of its Premier smokeless cigarette, earnings per share would have been $1.41 and net income would have been up 17% to $320 million in the first quarter, RJR Nabisco said.
“If you adjust it, the earnings gains look good,” said Emanuel Goldman, an industry analyst with PaineWebber Group Inc. in San Francisco.
Also Thursday, RJR Nabisco officials refused comment on a Wall Street Journal report that the consumer products company planned to move its corporate headquarters from Atlanta to New York. The Journal said the announcement could come at RJR Nabisco’s annual meeting next Thursday.
There had been talk of a move back to North Carolina since the Kohlberg Kravis takeover, but analysts noted that Louis Gerstner Jr., RJR’s new chairman and chief executive, is a New Yorker.
Gerstner, who lives in Greenwich, Conn., was president of American Express Co. before his move to RJR Nabisco.
RJR Nabisco moved its headquarters to Atlanta two years ago from Winston-Salem, N.C., its home for more than a century.
New York-based Kohlberg Kravis succeeded in its $25-billion takeover of RJR Nabisco in February, and RJR said its first-quarter results were reduced by $247 million because of “change of control” costs associated with the merger.
In a leveraged buyout, debt incurred to finance the acquisition is repaid with the target company’s cash flow or sale of its assets.
Other merger-related costs will be reflected in earnings once the merger is complete, the earnings statement said. A stockholders’ meeting to formally approve the merger is scheduled for April 27.
Test marketing of the smokeless Premier cigarette was discontinued in February. RJR Nabisco said the failure resulted in a $55-million charge against earnings in the first quarter.
The company’s R. J. Reynolds Tobacco subsidiary has said 700 employees will be offered early retirement or cash incentives to leave their jobs as a result.
