NEW YORK -- Food and tobacco conglomerate RJR Nabisco Holdings Corp. is sending its cigarette business out on its own.
RJR said Tuesday it will sell its international tobacco business to Japan's largest tobacco company and will break off its domestic tobacco operations into a separate company owned by RJR shareholders.The moves come amid rising legal challenges to the tobacco industry and falling U.S. cigarette sales.
"The tobacco industry is in deep trouble," said Ahron Leichtman, executive director of Citizens for a Tobacco-Free Society.
But RJR said the cigarette and food companies will probably fare better as separate entities.
Its tobacco brands include Camel, Winston and Salem cigarettes, and the deals will leave it in control of a food business that makes Ritz crackers, Oreo cookies, Life Savers candy and Planters nuts.
The $17 billion conglomerate has been under pressure for several years from major stockholders to separate its food and tobacco businesses because tobacco is considered a drag on RJR's stock. Some investors won't put their money in any company that has tobacco holdings, out of either opposition to smoking or fear that lawsuits will hurt profits.
John Maxwell, analyst at Davenport & Co., said RJR got a fantastic price for the international business -- $7.8 billion. He said RJR will use the proceeds to help reduce its $9.1 billion debt, leaving the domestic tobacco company in a better position to compete in the United States.
Carl Icahn, a one-time corporate raider who holds about 7.7 percent of RJR stock, had threatened to launch a fight for control of the board of directors to force a quick separation. Icahn failed to return repeated calls for comment Tuesday. The deadline for filing a rival slate is Friday.
RJR is selling its international tobacco business to Japan Tobacco Co., which is also assuming $200 million in debt.
"The deal will allow us to secure a base for future growth overseas and establish us as a global player," Japan Tobacco said in a statement.
The RJR international tobacco business is a distant third to Philip Morris Cos. and British-American Tobacco PLC, and its earnings have fallen amid financial turmoil in its key Russian and Asian markets.
After the sale, the RJR board plans to spin off its domestic tobacco operations, R.J. Reynolds Tobacco Co., to RJR shareholders. The tobacco company will keep its name and will retain its headquarters in Winston-Salem, N.C.
"We believe that the food and tobacco businesses will be best able to achieve their full potential under separate ownership structures," said RJR chairman and chief executive Steven F. Goldstone.
Importantly, the new corporate structure allows people filing tobacco suits to continue to make claims against either R.J. Reynolds Tobacco Co. or the renamed RJR Nabisco.
The spinoff would leave RJR Nabisco with an 80.6 percent stake in Nabisco Holdings Corp., the food division that also makes Oreos, Chips Ahoy! and Snackwell's cookies, Premium saltines and A1 steak sauce.
Kathryn Mulvey, executive director of corporate accountability watchdog Infact, said RJR's moves meant "the corporation responsible for Joe Camel would no longer be operating with the same influence on the national or international scenes."
Her Boston-based group has been encouraging consumers to avoid buying Nabisco products since 1994 because of the food company's ties to cigarette-making.