Raiders sink their teeth into Nabisco

Two of the most famous deal makers in the US are back on the prowl, says David Usborne

SIX YEARS after falling victim to the biggest and most celebrated hostile takeover in US corporate history, RJR Nabisco is once again fighting off some unwanted attention.

The gory details of the $25bn leveraged buy-out in 1989 were catalogued in the celebrated book, Barbarians at the Gate. And the barbarians at the gate this time are two corporate raiders of the 1980s, Bennett LeBow and Carl Icahn, who are pushing for an immediate spin-off of the group's food businesses.

The prime mover behind the campaign is Mr LeBow, 56, a financier with an uneven record of bankruptcies and failed investments. A resident of the ultra-exclusive Fisher Island in the mouth of Miami harbour, he is head of the Brooke Group, which, in combination with Mr Icahn, has built up a 4.8 per cent stake in RJR Nabisco, making it the second largest stock- holder.

Mr LeBow effectively declared war on the present RJR Nabisco board at the beginning of last week by writing to the chairman, Mike Harper, and demanding the sale of Nabisco, the makers of Ritz crackers and Oreo cookies.

In characteristically aggressive style, Mr LeBow warned that unless he was satisified, he would invite shareholders to vote in favour of a spin- off, and submit by 20 November an alternative slate of board members.

The assault triggered a rapid exchange of charges and counter-charges between the company and Mr LeBow and his associate, Mr Icahn, the former owner of TWA. Mr Harper wrote in reply that the board had already agreed on distributing Nabisco to shareholders, but that it should not be attempted before 1997. Among the reasons given for a delay is concern about pending litigation against US tobacco companies, and in particular a huge class- action suit now before a court in Louisiana.

"Your threatened consent solicitation would, if carried out, endanger this company's ability to successfully effect a spin-off at what would be the right time," Mr Harper countered. "That's not in the shareholders' interests."

Meanwhile, RJR Nabisco has not been shy about reminding its investors of Mr LeBow's bumpy record as a financier.

Company spokeswoman Carol Makovich said: "He has a long history of bankruptcies. And he has a history of compensating himself very well."

Mr LeBow is best known for his purchase of Western Union Telegraph Co in 1987 for $25m. The company, which he renamed New Valley, turned out to have a net negative worth of about $200m, and the investment quickly proved disastrous. Mr LeBow was forced to turn to Michael Milken, an old friend, who sold junk bonds for the company just to keep it afloat.

New Valley continued to struggle, however, as facsimile technology replaced telex. To avoid bankruptcy in 1991, Mr LeBow merged Liggett Tobacco, in which he had a 84 per cent stake and which he still controls, into New Valley, enraging other Liggett shareholders. In the meantime, he renamed his overall holding company the Brooke Group.

New Valley finally went belly-up in 1993. Mr LeBow was essentially saved, however, by the company's money transfer business. Still operating under the Western Union name, it had quietly been expanding and growing in profitability.

Mr LeBow successfully sold it to First Financial Management a year ago for $1.2bn in cash. It is money from that windfall that has allowed him to begin buying into RJR Nabisco.

Mr LeBow and Mr Icahn will not easily be dismissed by RJR. Analysts forecast last week that at the very least, the company will need to raise the dividend for its shareholders from the present $1.50 a share to $2 to buy their loyalty.

"This will force RJR management to either complete the Nabisco spin-off, or raise the dividend," a Sanford Bernstein analyst, Gary Black, predicted.