RJR backs away from Nabisco share offer

RJR Nabisco, the big US tobacco-to- foods group, abruptly cancelled a dollars 1.7bn offering of new shares yesterday, succumbing to market scepticism about the structure of the deal.

The deal promised to give investors the equivalent of a 25 per cent stake in the company's Nabisco foods division, allowing them to avoid the hazards of buying into the cigarettes business. But the complicated split- share issue, one of the largest new share offerings ever, had run into a wall of negative publicity from analysts who complained that investors would still be exposed to the effects of price wars and liability suits in the tobacco industry.

RJR Nabisco was expected to price the long-awaited issue yesterday, and trading in the separate food-based shares was to have begun as early as today. The company instead decided to withdraw it, blaming deteriorating market values for food companies.

The slide in food shares in the four months since the split-listing plan was first announced 'would make it difficult to successfully complete the offering at the price range stated in its prospectus,' the company said.

The issue was originally to be used to reduce the huge debt that remains from the leveraged buyout of RJR Nabisco by Kohlberg Kravis Roberts in 1989. But the company - apparently anticipating comparisons to a similarly aborted offering by the troubled GPA leasing group in March - said that 'given the improved state of (its) balance sheet, there was no compelling reason need to raise equity capital.

'(RJR) has no reason to raise capital in an unfavourable market.'

The underwriters had originally hoped to sell the 93 million shares at about dollars 18 apiece. But analysts predicted the issue would have to be priced at least 15 per cent lower, raising less than dollars 1.5bn.

Their biggest concern was not slumping food brands, but the persistence of problems in the company's RJ Reynolds tobacco division.

Wall Street, which had originally welcomed the split-listing plan as a chance for both RJR and investors to benefit from food's higher multiples, breathed a collective sigh of relief at the decision, pushing RJR's existing shares up dollars 3 8 to dollars 53 8 .