In the first step, RJR Nabisco will sell its international tobacco business to Japan Tobacco, the biggest tobacco company in that country with an 80 percent market share. Japan Tobacco will acquire all of the business and trademarks of R.J. Reynolds International, including the international rights to Camel, Winston and Salem.
The price, which includes the assumption of $200 million in debt, is significantly higher than the $6.5 billion to $7 billion that analysts thought the unit would fetch. The sale is expected to close within two months.
Shares of RJR Nabisco (RN) jumped 1 13/16 to 30 7/16 on the news.
Following the sale of the global tobacco business, RJR Nabisco plans to spin off its domestic tobacco business, Reynolds Tobacco, in a tax-free transaction to shareholders.
The parent company will be renamed Nabisco Group Holdings and the food operations will be named Nabisco Holdings Corp. Nabisco Group Holdings will own 80.6 percent of the food business.
"We believe that the food and tobacco businesses will best be able to achieve their full potential under separate ownership structures,'' said Steven F. Goldstone, RJR Nabisco's chief executive. "Each is a large, complex business with very different challenges, strategies and means of doing business."
"We also will achieve substantial expense savings by eliminating the RJR Nabisco headquarters and most of its corporate staff functions," he said. "In short, a spin-off transaction is in the long term interest of each business as well as current and future shareholders."
The breakup has been long awaited. The company has been under pressure from shareholders for years to separate the food and tobacco business on the assumption that the public value of the overall company would sharply escalate.
Critics have argued that concerns about the legal liability of the tobacco business was dragging down the value of the company's extensive food operations. RJR Nabisco makes products such as Oreo cookies, Chips Ahoy, Ritz crackers, Cream of Wheat cereal, Grey Poupon mustard and Life Savers under its Nabisco Holding Corp.
Recently, well-known corporate raider Carl Icahn acquired a 6.6 stake in the company and has been threatening to start a fight for control of the RJR if it did not move faster to break up its business. Shareholders have been disappointed by the stock's laggard performance in recent years.
A huge multibillion agreement last year with the 50 U.S. states removed most of the concerns about legal liability. Still, analysts say the company may still face future lawsuits from tobacco plaintiffs seeking to block the transfer of assets. Plaintiffs would argue that such a transfer would deprive them of a chance to win larger awards that they might gain from succesfully suing the whole company.
As an independent company, Reynolds Tobacco will have four of the country's leading cigarette brands -- Camel, Winston, Salem and Doral - and will be the second-largest tobacco seller in the U.S. Reynolds Tobacco recorded revenue of $5.6 billion in 1998. The company will be based in Winston-Salem, N.C. and its shares will be publicly traded on the New York Stock Exchange.
The company was acquired just over a decade ago for about $25 billion in what was then the biggest leveraged buyout to that time.
Written By Jeffry Bartash, CBS MarketWatch