R.J. Reynolds Industries Inc., the North Carolina tobacco and consumer products company, said yesterday that it had agreed to buy Nabisco Brands Inc. in a $4.9 billion deal that will make it the country's largest consumer products company.
The merger would combine the nation's second-largest tobacco firm with the fourth-ranked food company to create one of the country's 20 largest industrial corporations.
The combined annual sales of both companies last year was more than $19 billion. The next largest consumer products company would be Procter & Gamble, which had sales of $12.9 billion last year.
The merger, which is subject to approval of Nabisco shareholders, was agreed to Saturday night by the two companies' boards of directors. It followed several days of speculation about a possible merger that caused a halt in trading of Nabisco stock.
Under the agreement, R.J. Reynolds said it plans to offer on Tuesday to buy up to 51 percent of Nabisco's common stock at $85 a share in cash.
Each share of the company's remaining common stock will be exchanged for $42.50 in new Reynolds senior debt securities and $42.50 of a new preferred RJR stock, the company said. The debt securities and preferred stock are intended to have an aggregate value of $85.
Nabisco stock closed Friday at 82 5/8, up 2 7/8.
Analysts have said that the acquisition will help Reynolds in its drive to expand its consumer products division and lessen its reliance on tobacco sales.
Reynolds also sells Del Monte fruits and vegetables, Smirnoff Vodka, Hawaiian Punch, A-1 steak sauce and Kentucky Fried Chicken.
"We have long said that RJR would be interested in the merger candidate that offered the right fit with our existing lines of business," said Reynolds Chairman J. Tylee Wilson.
The merger makes sense for Reynolds because it will use Nabisco's products to supplement its Del Monte unit and give its products more exposure on supermarket shelves, analysts said. Reynolds will also acquire access to Canadian markets, where Nabisco is the largest food company.
Nabisco, whose stock price jumped 50 percent in the first four months of this year, has been considered by analysts to be an attractive food company for a merger.
The company had a successful experience in the merger game after it acquired Standard Brands Inc. four years ago.
Mergers have been a popular way for food companies to expand, generally because they improve market distribution. Another recent combination in the food business was that of Beatrice Cos. and Esmark Inc.
"We're in businesses we both understand, using the same distribution channels with many of our brands enjoying leading shares of their market segments," said Nabisco Vice Chairman F. Ross Johnson.
Reynolds' Wilson, 53, will remain as chairman and chief executive officer of the company. Johnson, also 53, will become president and chief operating officer of Reynolds. Edward Horrigan Jr., 55, president and chief operating officer at Reynolds, will be the company's vice chairman. They will make up the new office of the chairman of Reynolds Industries.
At New Jersey-based Nabisco, Robert M. Schaeberle, 62, will continue as chairman and James O. Welch, 53, president and chief operating officer, will be named president and chief executive officer.
If for some reason the buyout is not completed, Nabisco has granted Reynolds an option to purchase about 10.6 million shares -- about one-fifth of the 57.7 million shares outstanding -- of Nabisco stock at $85 a share and an option to buy Nabisco's U.S. biscuit division for $1.65 billion.
Nabisco, a leader in the lucrative cookie market for decades, had sales of $6.2 billion last year with such brands as Premium saltines, Ritz crackers, Oreo cookies, Planters nuts, Baby Ruth candy bars, Life Savers candies and breakfast cereals.
Reynolds, better known for its Winston, Salem and Camel cigarettes, had sales last year of $12.9 billion on domestic and internationally-marketed tobacco, canned and frozen foods and beverages.