NEW YORK -- RJR Nabisco Holdings Corp., the second-biggest U.S. cigarette maker, is selling its international tobacco business for nearly $8 billion to Japan Tobacco Inc. and plans to separate its remaining food and tobacco interests.
The twin announcements Tuesday would mean a breakup of a company that was acquired just over a decade ago for about $25 billion in what was the biggest leveraged buyout to that time.The company had told analysts last month that it was looking to sell or find a partner for its struggling international tobacco business.
But it came as a surprise that its board had also endorsed a plan for subsequent spinoff of the domestic tobacco business into a separate company. Its R.J. Reynolds Tobacco division makes Winston, Camels and Salem cigarettes and is second in the U.S. only to Philip Morris Cos. Inc., the maker of Marlboro.
On the news, RJR Nabisco stock jumped more than 4 percent, rising $1.18 3/4 to $29.81 1/4 a share in morning trading on the New York Stock Exchange.
The company has been under pressure from shareholders, including onetime corporate raider Carl Icahn who threatened a proxy fight to force the company to separate the tobacco and food businesses. Icahn faced a deadline of Friday for filing a slate of candidates for election to the RJR board in May.
The advocates of a splitup of the tobacco and food ties argued the market is undervaluing the food business because of its connection with the potential liabilities of the tobacco operations.
The spinoff would leave RJR Nabisco with an 80.6 percent stake in Nabisco Holdings Corp., which makes products like Oreo cookies, Ritz crackers and Planters nuts.
"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.
But analysts have warned that a deal to separate all connections between the food and tobacco businesses would likely draw legal challenges from people who may have claims over tobacco-related illnesses.
The domestic tobacco company was among the four major U.S. tobacco companies that recently settled claims by 46 states for the expense of treating sick smokers by agreeing to pay $206 billion over 25 years.
The industry earlier agreed to settle suits with the four other states for about $40 billion.
Goldstone had told analysts last month that finding a way to give the international tobacco business greater stature was a top priority for the first half of the year.
The international tobacco business is a distant third to Philip Morris and British-American Tobacco PLC, and its earnings have fallen amid financial turmoil in its key Russian and Asian markets.
Analysts had expected the sale to generate $6 billion to $6.6 billion, but the sale to Japan Tobacco topped that.
Japan Tobacco, the leading tobacco company in Japan and a growing overseas business, is paying $7.8 billion and is assuming $200 million in debt to acquire the international tobacco operations.
The sale is subject to approval by RJR Nabisco bondholders and regulators, but is expected to be completed within two months.
RJR said it would use the proceeds to reduce its debt and for other corporate purposes, including strengthening the position of its domestic tobacco business.
"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.
RJR said it would announce specifics on the domestic tobacco spinoff, pending final board approval, after the sale of the international tobacco business is completed.