RJR Nabisco Sells International Tobacco Business and Focuses on Foods, Drugs.

With settlements to pay resulting from recent legal challenges and decreasing cigarette sales, food and tobacco conglomerate RJR Nabisco Holdings Corp. is selling its international tobacco business for $7.8 billion to Japan Tobacco, Inc., Japans largest tobacco company. The announcement means 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.

With the sale of Reynolds International, RJR will establish itself in a number of other industries, including pharmaceuticals and foods. RJR said it expects the sale to be completed within two months. After the sale, the RJR board plans to spin off its domestic tobacco operations, R.J. Reynolds Tobacco Co. from its Nabisco food business, to RJR shareholders. The tobacco company will keep its name and will retain its headquarters in Winston-Salem, N.C. And, RJR Nabisco will continue to exist as a holding company, owning 80.6 percent of Nabisco Holdings Corp. The company will be re-named Nabisco Group Holdings.

"We believe that the food and tobacco businesses will best be able to achieve their full potential under separate ownership structures," said Steven Goldstone0, chairman and CEO. "Each is a large, complex business with very different challenges, strategies and means of doing business. We also will achieve substantial expense savings by eliminating the RJR Nabisco headquarters and most of its corporate staff functions. In short, a spin-off transaction is in the long-term interest of each business as well as current and future shareholders."

As an independent company, Reynolds Tobacco will have four of the country's leading cigarette brands (Camel, Winston, Salem and Doral) and will be the second-largest tobacco company in the United States.

Analysts 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. But some analysts warned that a deal to separate all connections between the food and tobacco businesses could likely draw legal challenges from those who may have claims over tobacco-related illnesses. RJR 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.