UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
October 8, 1996 (October 8, 1996)
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Date of Report (Date of earliest event reported)
AMERICAN BRANDS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-9076 13-3295276
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
l700 East Putnam Avenue, Old Greenwich, Connecticut 06870-0811
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 698-5000
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<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. Other Events.
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Registrant's press release dated October 8, 1996 is filed herewith as
Exhibit 20 and is incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
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(c) Exhibits.
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20. Press release of Registrant dated October 8, 1996.
SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Current Report to be signed on its
behalf by the undersigned thereunto duly authorized.
AMERICAN BRANDS, INC.
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(Registrant)
By Gilbert L. Klemann, II
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Gilbert L. Klemann, II
Senior Vice President
and General Counsel
Date: October 8, 1996
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EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
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20. Press release of Registrant dated
October 8, 1996.
EXHIBIT 20
Media Relations: Investor Relations:
Roger W. W. Baker Daniel A. Conforti
(203) 698-5148 (203) 698-5132
AMERICAN BRANDS PLANS TO SPIN OFF
U.K.-BASED GALLAHER TOBACCO COMPANY AND
CHANGE NAME OF AMERICAN BRANDS TO FORTUNE BRANDS
-- Fortune Brands to Consist of Powerhouse Non-Tobacco Brands
With Nearly $5 billion in Sales --
Old Greenwich, CT, October 8, 1996 -- American Brands, Inc. (NYSE-
AMB) today announced plans to spin off its U.K.-based Gallaher
tobacco business in a transaction that will be tax free to U.S.
shareholders and, when the transaction is consummated, to change
the name of American Brands to Fortune Brands.
Following completion of the transaction, American Brands
shareholders will own shares in two publicly-traded companies:
Gallaher -- the number 1 tobacco company in the U.K.; and Fortune
Brands -- a $4.6 billion (12 months sales through 6/96) company
that will consist of American Brands' market-leading, non-tobacco
consumer brands.
Completion of the transaction is contingent upon receipt of
favorable tax rulings and relevant stockholder approvals. The
ruling process is complex due to the transaction's international
aspects. It is expected that the spin off will be completed in
approximately six to ten months, assuming that the requisite
rulings and approvals are received.
U.S. holders of record of American Brands stock at the time
the spin is consummated will receive their Gallaher shares in the
form of American Depository Receipts (ADRs). Applications will
be made to list the Gallaher ADRs on the New York Stock Exchange
and the Gallaher ordinary shares on the London Stock Exchange.
Stockholders' ownership of Fortune Brands will be represented by
their current American Brands certificates.
Thomas C. Hays, American Brands' chairman and chief
executive officer, said, "Today's announcement represents a bold
step to further brighten prospects for our operations and to
create value for our shareholders. We believe that by creating
two financially strong, publicly-traded companies, each of which
will be solidly positioned for profitable growth, we will enhance
the prospects for both operations and increase shareholder value.
"This announcement reflects our determination to delight our
stockholders and follows the successful steps that we have
already accomplished, including the sale of The American Tobacco
Company in 1994, the sale of Franklin Life and Gallaher's retail
and vending operations in 1995, and the acquisition of Cobra Golf
early in 1996.
"The spin off will allow the managements of the two
companies to focus exclusively on strategies and objectives
geared to the very different financial, investment and operating
characteristics and growth potential of their companies. It will
enable Gallaher to concentrate its resources to further develop
its tobacco business in the U.K. and internationally, and will
allow Fortune Brands to focus exclusively on developing the high
growth potential of its operations. Since Gallaher will be
recognized more clearly as a U.K./European tobacco manufacturer
operating in an environment significantly different from the
current U.S. tobacco litigation and regulatory environment, the
value inherent in that operation should be more apparent.
"Each company will have the financial structure and
resources to be highly successful," Hays continued. "The balance
sheets, together with powerful cash generating potential, will
allow each company, based on the strategic direction to be
established by the respective Boards, to fund internal growth,
pay down debt, retain an appropriate dividend policy and
selectively consider acquisitions."
Hays emphasized that bondholders are an important
constituent group. "We intend to preserve bondholder value," he
said, "and our ability to satisfy our obligations to our debt
holders should not be impaired as a result of this transaction."
To allocate the overall debt burden of American Brands at the
time of the spin off, Gallaher will borrow and pay to Fortune
Brands approximately $1.4 billion. Fortune will use the proceeds
(approximately $1.25 billion after tax) initially to pay down
short-term debt. The Gallaher debt will be in addition to its
seasonal working capital requirements.
"For our shareholders," Hays noted, "this transaction will
create an opportunity to participate in what we believe will be
the more appropriately and fully valued Fortune Brands, with its
powerful array of non-tobacco consumer brands, and Gallaher, with
its high cash flow and position as a leading European tobacco
company. New investors will have the opportunity to choose
whether to participate in one or both of these businesses. We
believe the current price of American Brands stock does not fully
reflect the value or prospects of our powerful array of consumer
brands and that this transaction will enhance value for our
shareholders."
SIGNIFICANT DIVIDEND BENEFIT
The combined initial annualized dividend per share currently
contemplated by the management of both companies will equal,
based on the recent exchange rate, the existing $2.00 per share
American Brands dividend. It is anticipated that Fortune Brands'
annualized dividend will be 80 cents, and Gallaher's will be 77
pence ($1.20 based on the current $1.56 sterling exchange rate)
per old American Brands share.
Including a refund or credit of the U.K. Advance Corporation
Tax (A.C.T.) that is paid by Gallaher on its dividends, this
combined dividend would effectively result in a significant
benefit for eligible shareholders. For U.S. taxpayers, based on
current exchange and tax rates, the aggregate dividend is
effectively equivalent to about $2.30 per old American Brands
share. Future dividends for Fortune Brands and Gallaher will be
determined by the respective Boards of each company, following
the spin off.
FORTUNE BRANDS: A MAJOR NEW CONSUMER PRODUCTS COMPANY
The non-tobacco operations of American Brands, which will
become Fortune Brands, had sales of $4.6 billion for the 12
months through June 1996. Fortune Brands' headquarters will be
in Old Greenwich, Connecticut.
"The new name, Fortune Brands, reflects the significantly
different composition of the Company following the spin off,"
noted Hays, who will be chairman and chief executive officer of
Fortune Brands. "The word `fortune' means extraordinary success,
and Fortune Brands will be a company of extraordinarily
successful, category-leading consumer brands with great
prospects. Eleven brands each achieved sales exceeding $100
million last year. Titleist and Jim Beam. Master Lock, Day-
Timer and ACCO. Moen and Cobra. Foot-Joy and DeKuyper. Wilson
Jones. Aristokraft. These brands have enviable positions in
their markets. They are winners. And we move to the future with
a winning attitude." The new name will take effect at the time
of the transaction.
Fortune Brands will have very strong growth prospects and
powerful brand leaders in each of the categories in which it
competes -- hardware, distilled spirits, office products and
golf. Each of these categories is a cash generator, with
distilled spirits providing particularly strong cash flow. And
in each of these categories, Fortune Brands has number 1 or
number 2 brands.
FORTUNE BRANDS POISED FOR FASTER E.P.S. GROWTH
Hays noted that "the separation will allow the markets to
appreciate more fully the strong growth potential of the powerful
brands that will make up Fortune Brands' businesses. Because
Gallaher's business has been such a significant part of American
Brands' operating income, the transaction will allow investors to
focus on the powerful market positions and growth of our non-
tobacco brands.
"Following the spin off, our long-term E.P.S. growth goal
for Fortune Brands will be in the range of 13-15%, assuming a
satisfactory economic and pricing environment. That's
substantially higher than the 10% goal we had established for
American Brands."
Hays noted that, following the spin off, Fortune Brands'
powerful resources will give it broad flexibility to enhance its
operations through internal development and acquisitions as well
as to repurchase shares. Hays said that, following the
transaction, Fortune Brands will consider repurchasing up to 10
million shares, depending on market conditions and other
investment opportunities. He pointed out that American Brands
has recently invested over $1.7 billion to reduce fully diluted
shares by over 12 million, or 7%, in 1996, and by 30 million, or
more than 14%, in 1995.
GALLAHER TO PURSUE BUSINESS STRATEGY AS INDEPENDENT U.K. COMPANY
Commenting on prospects for Gallaher, Hays noted that
"Gallaher, with sales of over $6.5 billion for the 12 months
through June 1996, is the U.K. tobacco market leader. Gallaher
has an enviable brand portfolio and outstanding management that
has succeeded in consistently growing profits and cash flow
despite a mature and highly competitive U.K. tobacco market.
This profit growth has been accomplished through its market-
leading presence in the U.K. and Ireland, a growing presence on
the European continent and promising new business in the former
Soviet Union."
Peter Wilson, chairman and chief executive of Gallaher,
said, "I am extremely proud and enthusiastic to have the
opportunity to lead this new company and believe that prospects
for the future are excellent. Gallaher has the brands, market
positioning, financial resources, management expertise and
employee commitment to thrive as an independent, publicly-traded
company. Gallaher will have both the cash flow and market focus
to continue its success in the U.K. market and pursue our
international growth strategy."
* * * *
American Brands is an international consumer products
holding company with headquarters in Old Greenwich, Connecticut.
Its operating companies have powerhouse brands and leading market
positions. Gallaher Limited sells tobacco
products internationally, principally in Europe, where its major
brands include Benson and Hedges and Silk Cut. Major distilled
spirits brands sold by units of JBB Worldwide, Inc. include Jim
Beam and Old Grand-Dad bourbons, DeKuyper cordials and Whyte &
Mackay Scotch. MasterBrand Industries has leading hardware and
home improvement brands including Moen faucets, Master locks and
Aristokraft cabinets. ACCO World Corporation's major office
product brands include Day-Timer and Swingline. Acushnet
Company's golf brands include Titleist, Cobra, Pinnacle and Foot-
Joy.
* * *
This press release contains statements relating to future
results, which are forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those projected as a
result of certain risks and uncertainties, including but not
limited to changes in general economic conditions, foreign
exchange rate fluctuations, competitive product and pricing
pressures, the impact of excise tax increases with respect to
international tobacco and distilled spirits, regulatory
developments, the uncertainties of litigation, as well as other
risks and uncertainties detailed from time to time in the
Company's Securities and Exchange Commission filings.
# # #
B-Roll Footage will be available today via News Broadcast Network Satellite
Feed, regular window 1-1:30 p.m. ET. Telstar 401, Channel 3, downlink
frequency 3760, audio 6.2/6.8.
FORTUNE BRANDS/GALLAHER
DIVIDEND(a)
ANNUALIZED
EFFECTIVE RATE
(Per Share)
Current Anticipated
American Brands $2.00
Fortune Brands $0.80
Gallaher 1.20(b)
A.C.T. Refund or
Credit(c) 0.30(b)
TOTAL $2.00 $2.30 +15%
(a) Initial anticipated rate for U.S. taxpayers and
eligible U.K. shareholders who hold Fortune Brands and
Gallaher shares.
(b) Based on 77 pence at current $1.56 sterling exchange
rate, dividend equals $1.20 and A.C.T. equals $0.30.
(c) U.K. Advance Corporation Tax paid by Gallaher on its
dividends.
DIVIDEND -- KEY POINTS
-- For U.S. taxpayers and eligible U.K. shareholders, the U.K.
Advance Corporation Tax (A.C.T.) effectively raises the total
anticipated annualized dividend to about $2.30, an increase
of about 15%.
-- U.S. taxpayers will be entitled to a cash refund of the
A.C.T. paid by Gallaher less applicable U.K. withholding
taxes which can be credited against their U.S. income tax
liability.
-- U.K. taxpayers will be entitled to a tax credit against their
U.K. income tax liability equal to the A.C.T. paid by
Gallaher on its dividends.
-- The A.C.T. benefit adds about $0.30 to Gallaher's anticipated
annualized dividend of 77 pence ($1.20 assuming a $1.56
sterling exchange rate).
-- U.S. and U.K. taxable mutual fund shareholders get the same
benefit as individual shareholders, about 15%.
-- U.S. tax exempt shareholders get a 4% benefit.
-- U.K. tax exempt shareholders get a 28% benefit.
Future dividends for Fortune Brands and Gallaher will be determined by the
respective Boards of each company following the spin off.
The U.S. foreign tax credit is subject to complicated
limitations, so shareholders should consult with their tax
advisor.
Fortune Brands
Fact Sheet
Fortune Brands will be an international consumer products company with the
number 1 or number 2 brands in highly attractive categories: hardware and home
improvement products, distilled spirits, golf products, and office products.
Fortune Brands
Historical Operations On A Comparable Basis
(in millions of dollars)
1992 1993 1994 1995 CGR
Net Sales 3,694.6 3,744.0 4,080.0 4,380.8 5.8%
Operating Company
Contribution 514.1 566.7 614.6 640.0 7.6%
Operating Income 438.9 491.6 529.0 553.3 8.0%
Net Income from
Continuing 80.4 101.9 121.7 122.4 15.0%
Operations
Reported results adjusted to exclude sales, operating results and gains or
losses on businesses sold. Results have also been adjusted to exclude
restructurings and other material non-recurring charges and credits.
o Goal is for E.P.S. growth of 13% to 15% assuming a
satisfactory economic and pricing environment.
o On a restated, historical basis over the past three years
(adjusting for unusual items):
--Sales grew at about a 6% compound annual growth rate (CGR).
--Operating Income at around 8%, and
--Net income at 15%.
o Growth is driven by great brands.
o Hardware and home improvement products will account for
about one-third of operating income. Brands include:
--Moen: The North American leader in kitchen and bath faucets.
--Master Lock: number 1 padlock in the world.
--Aristokraft: number 2 in U.S. kitchen and bath cabinets.
--Waterloo: number 1 tool storage manufacturer worldwide.
- 2 -
o Distilled spirits will also contribute about one-third of
operating income. Brands include:
--Jim Beam bourbon: number 1 bourbon worldwide.
--DeKuyper: number 1 cordial line in the U.S.
--Whyte & Mackay Special Reserve: number 2 scotch in Scotland.
--Vladivar: number 2 vodka in U.K.
o The remaining third of operating income will be split between golf and
office products.
--ACCO World is the number 1 worldwide office products company. Its brands
include:
Swingline: number 1 stapler.
ACCO: number 1 paper clip, fastener, data binder and punch.
Day-Timer: A leader in time management and personal productivity
solutions.
--Acushnet is the largest manufacturer of golf products. Its brands include:
Titleist: number 1 golf ball worldwide, its DCI irons are number
1 with club pros.
Cobra: number 1 iron and number 2 golf club, and
Foot-Joy: number 1 golf shoe and glove.
o Building on great brands:
--11 have sales in excess of $100 million: Moen, Titleist,
Jim Beam, Master Lock, ACCO, Aristokraft, Foot-Joy,
Wilson Jones, Day-Timer, DeKuyper and Cobra.
o Focused on delighting two key constituencies: Consumers of our products and
owners of our stock.
--American Brands spent $1.7 billion to reduce fully
diluted shares by over 12 million, or 7% in 1996, and by 30 million, or
more than 14%, in 1995. After the Gallaher spin-off, Fortune Brands may
repurchase 10 million shares, depending on market conditions and other
investment considerations.
--$715 million acquisition of Cobra Golf to enhance our position in an
industry with excellent growth potential.
--Fortune Brands, as structured, with a total debt to capital ratio in the
low 20s, will have the financial capability to invest in growth through
acquisitions.
--Contemplated initial annual dividend of $0.80/ per share would represent a
mid-to-high 40s payout.
--Dividend could be increased periodically, while perhaps somewhat reducing
the payout ratio over time.
o Key Executives:
--Thomas C. Hays: Chairman of the Board and Chief Executive
Officer
--John T. Ludes: President and Chief Operating Officer
Headquarters Old Greenwich, Connecticut
Employees Approximately 23,800 worldwide
Gallaher
Fact Sheet
Gallaher is the leading manufacturer of tobacco products in the United
Kingdom. It also is the number one company in the Republic of Ireland and has
a growing presence in continental Europe and the former Soviet Union.
Gallaher's shares of the U.K. and Republic of Ireland cigarette markets for
the first six months of 1996 were 39% and 43%, respectively.
Gallaher
Historical Operations On A Comparable Basis
(in millions of pounds)
1992 1993 1994 1995 CGR
Net Sales 3,607.9 3,988.5 4,006.3 4,079.4 4.2%
Operating Company
Contribution 322.3 349.0 340.7 354.0 3.2%
Operating Income 322.3 347.4 337.4 350.2 2.8%
Net Income from
Continuing 201.0 224.7 209.9 231.5 4.8%
Operations
U. S. GAAP reported results adjusted to exclude sales, operating results and
gains or losses on businesses sold. Results have also been adjusted to exclude
restructurings and other material non-recurring charges and credits.
o Gallaher's leading U.K. brands include:
--Benson and Hedges, the number 1 cigarette brand.
--Silk Cut, the number 1 low-tar brand.
--Hamlet, the number 1 cigar.
--Condor, the number 1 pipe tobacco, and
--Old Holborn, the number 2 hand-rolled tobacco.
o Gallaher's major brands by price category are:
Share of Category - Consumer Sales - 6 Months 1996
--Premium: Benson and Hedges, Silk Cut. 54%
--Mid-price: Berkeley Superkings, Benson and Hedges
Superkings. 42%
--Low-Price: Mayfair, Sovereign, Berkeley King Size. 10%
- 2 -
o Major competitors in the U.K. and their shares of consumer
sales (6 months, 1996)
Gallaher 39.0%
Imperial 37.7%
Rothmans/Philip Morris 13.1%
Reynolds 2.5%
Others 7.7%
o In 1995, Gallaher's cigarette volume totaled 43.62 billion
units.
--Gallaher has a growing international presence. Last
year unit sales outside the U.K. reached 37% of U.K.
volume.
o Aggressively enhancing operations and brands:
--37% reduction in total workforce since 1990.
--Invested $30m in new state-of-the-art distribution
center; closed 7 regional distribution centers since 1991, overall, the
distribution workforce has been reduced 83%.
--4.4% U.K. cigarette average price increase (excluding excise taxes) in
1996.
--Berkeley launched King Size to expand low-price offering; also launched
mid-price Ultra Lights line extension in 1995.
--Launch 3/96 of Sovereign King Size from Benson and Hedges at the upper end
of the low-price sector, and combined with its other low-price brands
increased its share of the category from 5.6% in first half 1995 to 10% in
1996 first half.
o Gallaher has the brands, the marketing expertise and the employees to
prosper as an independent company.
o Dividend:
--Gallaher's initial annualized dividend is expected to be 77 pence ($1.20
based on current $1.56 sterling exchange rate) per old American Brands
share.
o Key Executives:
--Peter M. Wilson: Chairman and Chief Executive
--Philip R. Burchell: Deputy Chairman and Director of Finance
GENERAL INFORMATION
Headquarters Weybridge, Surrey, England
Employees Approximately 3,700
