RJR Nabisco, which refloated almost half its equity in 1991, will create two classes of shares, one reflecting the performance of its Reynolds tobacco holdings and the other its Nabisco foods division. While RJR Nabisco will remain one corporation, the split will allow investors to speculate separately on the fortunes of two increasingly divergent businesses, the company said yesterday.
The complex restructuring, which will entail floating 25 per cent of the new Nabisco group, will also raise an estimated dollars 1.5bn ( pounds 1.08bn) in new equity, which will be used to pay down RJR Nabisco's dollars 15bn debt. Both classes of shares will also pay dividends, the first payout to the company's shareholders since the 1989 buyout by Kohlberg Kravis Roberts, the takeover specialist.
The moves reflect frustration with the company's stagnating share price, which has suffered from a series of setbacks to the cigarette industry - the rise of discount competitors, the prospect of higher US healthcare taxes and publicity over the hazards of smoking. Trading multiples for tobacco companies, once considered valuable cash cows, have fallen to about 10 times earnings while food company shares trade at 17 times earnings.
Wall Street and credit rating agencies generally welcomed the move, which gives investors 'pure plays' in both industries. While the new dividends - which should exceed the industry average of 40 per cent of cash flow - will sharply reduce available earnings, they will be partly offset by lower debt-service costs.Reuse content