PM/RJR Merger Rumor (fwd)

[Robert Weissman <rob@essential.org>]

 March 4, 1999 

 RJR Shares Slip on News Firm Nears
 Sale of Its Overseas Tobacco Business

 By SUEIN L. HWANG and PAUL M. SHERER 
 Staff Reporters of THE WALL STREET JOURNAL

 NEW YORK -- Shares of RJR Nabisco Holdings Corp. slipped on news
 that the company is close to selling its beleaguered overseas tobacco
 business, suggesting investors aren't optimistic the deal will jump-start the
 dormant stock.

 After months of searching, RJR is trying to close a sale of its overseas
 cigarette unit, for an estimated $6 billion, by March 12, people familiar with
 the situation said.

 That date is also the deadline for filing any proxy
 materials, and investor Carl Icahn has warned he
 may launch a proxy fight against RJR
 management.

 Reports of the company's impending sale appeared to have left investors
 unmoved Wednesday. RJR shares fell 18.75 cents to $27.6875 in New York
 Stock Exchange composite trading.

 With a stake of nearly 8% in RJR as of last month, Mr. Icahn has threatened
 to launch a proxy fight if the company doesn't spin off its Nabisco food
unit, a
 move some investors believe will substantially boost RJR's sagging shares.

 Mr. Icahn's threat has added still more pressure on RJR Chief Executive
 Officer Steven Goldstone to find ways to boost RJR's value. Last month, Mr.
 Goldstone rejected a Nabisco spinoff as impractical, saying his top priority
 was a possible joint venture or sale of the international tobacco unit.
Buffeted
 by the volatile economies of Russia and Eastern Europe, international tobacco
 has weighed heavily on RJR's quarterly earnings.

 Analysts remain deeply divided over whether that strategy will help RJR
 shares rebound. In a report Tuesday, Salomon Smith Barney analyst Martin
 Feldman said the sale of the overseas business could add at least $7 to RJR's
 share price.

 Mr. Feldman also estimated the acquirer would take on $2.5 billion to $3
 billion of the tobacco group's $6.5 billion in world-wide debt. "That would
 put domestic tobacco business into a much healthier position," he said. "It
 would be a much less-leveraged company."

 But Gary Black, analyst at Sanford C. Bernstein, argued that the sale won't
 do more than add "a few points" to RJR's valuation. "A cash sale might
 actually generate no lasting value, given a substantial capital-gains tax,
and the
 dilutive nature of a cash deal to RJR's earnings," he said in a report
 Wednesday.

 Although debt-strapped RJR has had difficulty keeping up with rival Philip
 Morris Cos. abroad, executives note that its international cigarette unit
 contains highly coveted commodities: Camel and Winston, widely recognized
 brands of American-blend cigarettes. They also point out that the proposed
 merger of British American Tobacco PLC and Rothmans International BV
 should only step up the merger fever. "The deal created a strategic imperative
 for everybody else to get the one remaining asset in the world with significant
 scale," said one executive.

 Although a top bidder hasn't yet emerged, interested parties are said to
 include market leader Philip Morris. Other likely purchasers include Japan
 Tobacco Inc., analysts said, and working together in a joint bid perhaps,
 France's Seita SA and Spanish cigarette company Tabacalera SA.

 Many analysts believe a likely winner is Philip Morris, the world's largest
 tobacco company. They believe Philip Morris may want to lengthen its No. 1
 position over rival British American Tobacco, which recently announced its
 acquisition of No. 4 Rothmans. But any acquisition by Philip Morris is bound
 to run into antitrust concerns in Western Europe, and several brands might
 have to be divested.

 However, analysts said, an RJR-Philip Morris link would produce an
 especially strong presence in Russia and Eastern Europe, two long-term
 growth areas for the industry. Philip Morris declined to comment.

 Gallaher Group PLC and Imperial Tobacco PLC -- which together control
 around 80% of the United Kingdom market, but aren't active abroad -- might
 also be interested, analysts said. Though they declined to comment, both
 companies are now clear of litigation and legal woes, following the collapse
 last week of Europe's only class-action suit against Big Tobacco.


 -- Ernest Beck contributed to this article.