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RJR sells int'l tobacco line
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March 9, 1999: 4:43 p.m. ET
Japan Tobacco to pay $8 billion; food, tobacco businesses to be split
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NEW YORK (CNNfn) - RJR Nabisco said Tuesday it will sell its international tobacco business to Japan Tobacco Inc. for $8 billion and separate its domestic tobacco operations from its food operations.
Investor Carl Icahn, who holds a 6.6 percent stake in RJR, has been pushing for a split of the company. Industry analysts have said shedding the international tobacco unit will shore up RJR's business overall and help it defend itself against any proxy battle.
Industry analysts said the move is aimed at boosting the hidden value of RJR rather than protecting the company from international lawsuits.
"This two-sided deal… is outside the [international] litigation factor. This is basically an effort to realize hidden value," Brown Brothers Harriman analyst Roy Burry told CNNfn. He said lawsuits abroad were not an important factor in RJR's spinoff plans because the U.S. is "the only country allows certain things, like punitive damages, class-action suits, and the like."
The purchase, approved by Japan Tobacco's board, includes all businesses and trademarks associated with the international unit, including international rights to the Camel, Winston and Salem cigarette brands.
Tokyo-based Japan Tobacco is one of the world's largest makers of tobacco products and the leading tobacco company in Japan with a nearly 80 percent market share there. The purchase price includes the assumption of $200 million in debt.
Several companies, including Philip Morris Cos. Inc., British American Tobacco PLC and France's tobacco group Seita SA were among those interested in RJR's international business, analysts have said, adding the unit was worth $6 billion at most.
RJR plans to use proceeds from the sale, which is expected to be completed in two months, to reduce debt and for general corporate purposes. The company hopes the sale will strengthen the financial position of Reynolds Tobacco Co.
"They want to create a much stronger balance sheet, a much stronger capitalization" Burry said. "This will take their total debt from over 50 percent down under 15 percent."
"Also, they were offered top dollar by Japan Tobacco," Burry added. "Japan Tobacco very much wants to establish a presence outside Japan."
Burry said Japan Tobacco is under attack on its home turf and has lost market share to Philip Morris and other international tobacco companies. He said Japan Tobacco's purchase will allow them to compete more aggressively in international markets at a time when they are encountering domestic difficulties.
RJR is one of the country's largest cigarette makers, second only to Philip Morris, which makes Marlboro.
The transaction is subject to regulatory conditions and certain consents from RJR bondholders.
The separation of the company's domestic food and tobacco businesses will be accomplished by a tax-free spinoff after the sale of the international tobacco division. On completion of the spinoff, RJR Nabisco, to be renamed Nabisco Group Holdings, will continue to exist as a holding company with an 80.6 percent stake in the food business, Nabisco Holdings Corp.
The companies will continue to trade as separate entities on the New York Stock Exchange.
Shares of RJR (RN) jumped 1-7/16 to 30-1/16 Tuesday morning. 
-- from staff and wire reports
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