RJR to Sell Public 19% of Nabisco Food Business : Stocks: The $1-billion transaction might be the first step in a company breakup, industry observers say.
RJR Nabisco Holdings said Monday that it plans to sell 19% of its Nabisco food business to the public for more than $1 billion in what many industry observers said might be the first step in a long-awaited breakup of the food and tobacco giant.
But the proposed stock offering--proceeds from which would be used to reduce bank debt--met with lukewarm response from many food and tobacco analysts. They said the plan does not go far enough in insulating the Nabisco Foods Group from the problems and controversy that have loomed over the tobacco business and depressed RJR’s stock price. RJR indicated a complete spinoff of the food company remains far from certain.
“It’s a relatively small percentage of the (Nabisco food) business that is being sold . . . it doesn’t unlock an awful lot of value,” said Anton J. Brenner, who follows consumer product companies at UBS Securities in New York.
In a separate action, New York-based RJR dropped out of a plan to join its largest shareholder, Kohlberg Kravis Roberts & Co., to buy foods maker Borden Inc. for about $2 billion because of “certain accounting issues.” Kohlberg Kravis--which took over RJR in a $25-billion leveraged buyout in 1989 but has since reduced its stake--said it will continue with the Borden takeover.
In selling a stake in Nabisco Foods, RJR executives--who also plan to begin paying a dividend on RJR stock--said they are confident that their proposal will lead Wall Street to recognize the full value of the booming food company.
“This program supports our focus on shareholder returns by establishing a separate trading value for our food business and providing shareholders with an immediate benefit--a common dividend--while also reducing overall debt,” Charles M. Harper, chairman and chief executive of RJR Nabisco, said in a statement.
On Monday, RJR shares rose 12.5 cents a share to close at $7 on the New York Stock Exchange, where the company’s stock was the day’s most heavily traded.
The growth of Nabisco Foods, whose brands include well-known names such as Oreo cookies, has been overshadowed by threats to RJR tobacco business, including growing government restrictions on smoking and numerous liability suits. RJR’s cigarette brands include Winston, Salem and Camel.
But RJR, like rival tobacco and food company Philip Morris, continued to resist investor pressure for a total breakup of the company’s food and tobacco units. RJR said it will wait at least two years before considering spinning Nabisco Foods to current stockholders. But, it added, there is “no assurance” that a spinoff will take place.
Instead, under the company’s current proposal, RJR would sell 45 million shares of the newly created food company, Nabisco Holdings Corp., at between $23 to $26 a share. That would raise between $1.04 billion and $1.17 billion.
But RJR would remain firmly in control of its food company. RJR would retain voting control of Nabisco Holdings through ownership of a separate set of common stock. In anticipation of the spinoff, RJR’s board already has named the members of Nabisco Holdings’ board of directors. John Greenias, head of Nabisco Foods, would serve as president of Nabisco Holdings, and RJR’s Harper would also serve as chairman of the new publicly traded foods company.
Such close ties raise concerns that Nabisco Holdings could remain vulnerable to any liability lawsuits filed against RJR’s tobacco business. So far, RJR has successfully defended itself against such suits.
Last year, RJR Nabisco failed to win support for a plan to issue a new class of stock tied to Nabisco Foods’ results but that would keep the company intact.
