Food and tobacco giant RJR Nabisco Inc. took a big bite out of its debt troubles by selling its Del Monte processed foods business to an investor group headed by Merrill Lynch & Co. for $1.475 billion in cash, company officials said Monday.
The Del Monte sale is part of a continuing program to cut the enormous debt that resulted from Kohlberg Kravis Roberts & Co.'s $25-billion leveraged buyout of the company early this year.
Lenders who financed the buyout gave RJR Nabisco until February, 1990, to reduce the debt by $5.5 billion and an additional six months to bring the total cut to $6 billion. Monday's announcement brings RJR Nabisco to within $600 million of the February requirement.
"We are now up to $4.9 billion," said David Kalis, an RJR Nabisco spokesman. "We're almost home. . . . We don't expect any more major divestitures--by major I'm talking in the mega-billions."
In addition to Merrill Lynch, other investors include Del Monte senior management, Kikkoman Corp. of Japan and Citicorp Capital Investors Ltd. In addition to its investment, Kikkoman has agreed to purchase a variety of Del Monte's assets in the Far East, RJR Nabisco said.
The processed foods business has been for sale for several months, analysts say, with Citibank as the major would-be buyer.
"But Citicorp had to reduce its equity stake . . . because the Federal Reserve Board had rules limiting banking investments in non-financial companies," said Kurt Feuerman, analyst for Drexel Burnham Lambert. "That was the major roadblock. Merrill Lynch stepped in fairly recently when it was decided that Citibank could not have a larger equity portion."
Will Retain Parts
The sale announced Monday includes Del Monte Foods USA, Del Monte Foods Europe, the company's processed foods businesses in Mexico, the Caribbean and the Far East, and Del Monte's pineapple operations in the Philippines and Kenya.
Not sold were Del Monte/Aylmer Canada, Del Monte's processed foods business in Venezuela and Nabisco food businesses in Latin America, which were managed by Del Monte.
RJR Nabisco's sell-off campaign was made necessary when Kohlberg Kravis Roberts took control of the company last February in the biggest corporate buyout in history. In a leveraged buyout, a company is bought with borrowed money, and its own assets are used as collateral. The debt is paid off through cash generated by the firm and the sale of assets.
With RJR Nabisco so close to reaching its debt-reduction goals, speculation now revolves around what further assests are left to sell.
"When the LBO was set, there were obvious things the company had to do," said Marc I. Cohen, an investment analyst with Sanford C. Bernstein & Co. "They had to get management in place and sell assets. They have made great strides on the management side. They have also made a lot of progress on the asset disposition side. They need to do a little bit more, but they don't have to get rid of any big chunks."
One "big chunk" that's left is the company's Planters LifeSavers Co., a snack food subsidiary, but industry watchers contend that RJR Nabisco will probably hold on to that business. It is more likely to sell off its 20% stake in ESPN, its Latin American and New Zealand food units and its Butterfingers/Baby Ruth candy division.
"I'd say they're really going to slow it down now," Feuerman said. "They're not in a position where they have to sell a lot of assets right now, and they're in the strong position of having a whole slew of things to get rid of. From here on in, the focus of their activities will not be on divesting assets but on growing the existing businesses."
More Deals Earlier
Earlier this month, RJR Nabisco announced the sale of its worldwide Del Monte Tropical Fruit Co. to Polly Peck International PLC, a London-based conglomerate, for $875 million in cash.
The summer was even busier, for the company also sold its India and Pakistan biscuit division for $44 million, its Chun King food line for $52 million and its European food businesses for $2.5 billion.
"From now on, we can be strategic about it (divestment)," said Kalis, the RJR spokesman. "We can take a look at businesses that might not fit into the organization and decide what to do."