More Speculation on RJR Spin-Off (fwd)

[Robert Weissman <rob@essential.org>]

RJR seeks partner to bail out int'l tobacco unit-Street 
Thursday February 4, 1999 
 RJR seeks partner to bail out int'l tobacco unit-Street 
 07:14 p.m Feb 04, 1999 Eastern 

 By Eric Wahlgren 

 NEW YORK, Feb 4 (Reuters) - Wall Street is all but certain RJR Nabisco
Holdings Corp. will
 find a joint venture partner for its international tobacco business or sell
part or all of the ailing unit
 by the first half of 1999. 

 What remains a multi-billion-dollar question is what tobacco company or
companies will bid for
 pieces or the whole of R.J. 

 Reynolds International Inc., which analysts value at $3 billion to $5.4
billion. 

 ``It's no secret that it is a major initiative of the company to sell (the
unit) or set up some kind of
 joint venture,'' said David Adelman, a Morgan Stanley Dean Witter analyst.
``Who is interested in
 it will depend on the valuation or what type of partnership they come up
with.'' 

 Carol Makovich, an RJR spokeswoman, confirmed the maker of Camel, Salem and
Winston
 cigarettes is ``looking at the (economies of) scale issue'' of the unit,
but said the company had no
 comment on what it plans to do with the business. 

 RJR is trying to shore up its tobacco business as a proxy fight with
Investor Carl Icahn heats up,
 analysts said. 

 Icahn wants the conglomerate to spin off its snack food business, Nabisco
Holdings Corp., from
 its tobacco business, and is seeking a proxy vote on the issue if RJR does
not split the businesses
 on its own. 

 Martin Feldman, a Salomon Smith Barney analyst, who values the
international unit at up to $5.4
 billion, said RJR's disposal of the business could push up the company's
stock price 20-25
 percent. Credit Suisse First Boston analyst Bonnie Zoller, who values the
unit at just $3 billion,
 said shedding Reynolds International could add 10-15 percent to RJR's share
price. 

 International markets have not been friendly to Reynolds International.
Currency crises in
 overseas markets like Russia and some neighbouring countries where the unit
has a big share have
 left it with sinking profits, tumbling volume and declining market share. 

 RJR reported last week that the tobacco unit's fourth quarter operating
company contribution
 plunged 39 percent, excluding one-time items, on a volume decline of 9
percent. 

 Although hurt in recent months by stumbling markets overseas, the unit even
in good times suffers
 from poor economies of scale, analysts say. 

 ``The issue is that they are not big enough to compete on a global basis,''
Adelman said. 

 Wall Street believes several of the world's biggest tobacco companies could
be interested in
 bailing out Reynolds International, which posted about $3.07 billion in
sales in 1998, down 10
 percent from $3.43 billion a year ago. 

 Despite its pending merger with Rothmans International, British-based
British American Tobacco
 Plc , the world's second largest tobacco company, might consider an
outright purchase of the unit,
 Feldman said. 

 ``B.A.T. has a high degree of interest in a number of parts of Reynolds
International,'' Feldman.
 He said B.A.T. is stronger in Asia than it is in Europe, where it might
benefit from Reynolds
 International's brands. 

 Another suitor that could swallow up the unit whole is France's tobacco
group Seita SA, the
 maker of Gitanes and Gauloises cigarettes, Feldman said. Japan Tobacco Inc.
is another potential
 candidate, analysts say. 

 Analysts agree Philip Morris Cos. Inc., the world's largest cigarette
company, could be interested
 in buying pieces of the unit. For instance, Zoller believes the maker of
top-selling Marlboro
 cigarettes could end up making a bid for Reynolds International's Salem
brand in Asia. 

 ``I think Philip Morris would be interested in that franchise and could do
more with their
 infrastructure,'' Zoller said. 

 ((--Eric Wahlgren/New York Newsdesk (212) 859-1657,
eric.wahlgren+reuters.com)) 

Copyright 1999 Reuters Limited.