SCHEDULE 14A
(Rule 14a-101)
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SCHEDULE 14A INFORMATION
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Section 240.14a-12
RJR Nabisco Holdings Corp.
(Name of Registrant as Specified In Its Charter)
RJR Nabisco Holdings Corp.
(Name of Person(s) Filing Proxy Statement)
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RJR NABISCO HOLDINGS CORP.
A. POSITION REGARDING LEBOW AND ICAHN CONSENT SOLICITATION*
PROPOSAL 1: IMMEDIATE SPIN-OFF OF NABISCO.
. MIKE HARPER, STEVE GOLDSTONE, ALL OF THE OTHER DIRECTORS, AND THE
MANAGEMENTS OF BOTH THE FOOD AND TOBACCO BUSINESSES ARE ALL
COMMITTED TO A SPIN-OFF OF NABISCO -- THE ONLY QUESTION IS TIMING.
. The Board has concluded that an attempt to complete a spin-off at
this time would be a serious mistake. Well-regarded tobacco
analysts agree. Both Philip Morris and Loews have also
apparently decided not to pursue their earlier publicly discussed
spin-off plans.
. The Board understands that a majority of stockholders favor a
spin-off, so there is no need to "send a message" to the Board by
consenting to the LeBow/Icahn proposals.
. The real practical effects of consenting to these proposals would
be (i) to encourage LeBow/Icahn to run a slate of directors,
furthering their efforts to take control of the Company and merge
LeBow's failing Liggett into RJR and (ii) to distract the
Company's management from its focus on the business.
. Management's first priority is to increase stockholder value by
focusing on the fundamentals of the business, but without the
risk to the Company and its stockholders presented by the LeBow/
Icahn plan. LeBow/Icahn's plan diverts management's attention
from the business.
. THE LEBOW/ICAHN IMMEDIATE SPIN-OFF PROPOSAL DOES NOT MEET THE RJR
BOARD'S THREE CRITERIA:
1. The spin-off must avoid costly litigation delays and prolonged
uncertainty.
. The Company believes that tobacco plaintiffs' lawyers are
likely to seek an injunction to prevent an immediate spin-off.
Even if an injunction were not granted, the Company expects
that such lawyers will pursue claims attacking the spin-off
for years. This litigation could involve claims directly
against the Company's stockholders. The Company believes that
this litigation is likely to depress the value of the
Company's stock.
. The Company believes that LeBow/Icahn's statements that the
intent of their proposal is to alleviate "investors' concerns
about potential tobacco liabilities" would likely lead to
claims by tobacco plaintiffs that the proposed immediate spin-
off constitutes an intentional fraudulent conveyance.
. The current tobacco litigation environment includes new types
of litigation (class actions, state attorneys general
Medicare/Medicaid claims).
. The Company believes that if the litigation environment im-
proves, as the Company expects, it will be able to consider a
tax-free spin-off in 1998. Decertification of a tobacco
plaintiff class action and a favorable decision in an attorney
general lawsuit would set favorable precedents for future
actions, thereby reducing market uncertainty with regard to
these new types of tobacco litigation.
_____________________
* For further details, see Presentation to Stockholders Regarding
the Revocation of Consent Solicitation by RJR Nabisco Holdings
Corp.<PAGE>
. Litigation could also be pursued by purchasers of the
Company's and RJRN's securities that have relied upon the
Company's commitments that it would not spin off Nabisco in
the near-term.
. Many industry analysts agree that there are significant
litigation risks.
2. The spin-off must preserve the financial integrity of both the
tobacco and the food businesses.
. In the prospectuses for numerous public offerings the RJR
Board publicly committed not to spin off Nabisco before
December 31, 1996, and not before December 31, 1998 if it
would cause RJRN or Nabisco debt to be rated below investment
grade. This restructuring enabled the Company to reinstitute
dividends on its common stock and reduce its debt cost of
capital, thereby increasing the Company's current cash flow
and net income.
. The Company believes that in order to retain its ability to
make credible commitments in the future it must honor its
prior commitments.
. The Company believes that the announcement of an immediate
spin-off would likely lead to a loss of the Company's
investment grade rating, thus increasing the Company's cost of
both debt and equity capital. LeBow/Icahn's credit analysis
ignores the fundamental issue that a smaller, pure tobacco
company requires significantly better coverage ratios than a
larger, diversified tobacco and food company. A smaller, pure
tobacco company with RJR Nabisco's current credit statistics
would likely not be investment grade.
. LeBow/Icahn's willingness to have the Company break its
commitments should cause stockholders to question the
reliability of LeBow/Icahn's own commitments.
3. The spin-off must be tax-free.
. The Company believes that LeBow/Icahn's repeated statements
that the primary purpose of their immediate spin-off proposal
is to increase stockholder value or to make Nabisco a more
attractive acquisition candidate jeopardizes the tax-free
status of that proposal. The IRS takes the position that a
spin-off is not tax-free if the primary purpose is to increase
stockholder value.
. The Company believes that an eventual spin-off of Nabisco will
be tax-free because the reasons it has considered for the
spin-off are similar to reasons which in the past have been
approved by the IRS as valid corporate business purposes.
. AN IMMEDIATE SPIN-OFF MAY NOT LEAD TO SIGNIFICANT INCREASES IN
STOCKHOLDER VALUE.
. Many tobacco analysts do not agree that a spin-off would result
in increases in stockholder values in the high ranges cited by
LeBow/Icahn. LeBow/Icahn have taken analysts' quotes out of
context in an attempt to mislead stockholders into thinking that
an immediate spin-off would result in significant price
increases.
. THE LEBOW/ICAHN SPIN-OFF VALUATION CONTAINS FUNDAMENTAL FLAWS AND
SIGNIFICANTLY OVERSTATES THE VALUE CREATION POTENTIAL OF A SPIN-OFF.
THEIR "PIE-IN-THE-SKY" VALUATION EXCEEDS EVEN THE MOST OPTIMISTIC
VALUATION OF AN IMMEDIATE SPIN-OFF OF THE INDEPENDENT ANALYSTS THEY
CITE.
. The multiples LeBow/Icahn have chosen have been pulled from thin
air and are not justified by the "comparables" they have
identified.
. The LeBow/Icahn claim that a spin-off would create $5-6 billion
of value is not supported with credible arguments.
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. LEBOW/ICAHN CLAIM THAT THEIR INVOLVEMENT HAS RESULTED IN A
SIGNIFICANT INCREASE IN THE COMPANY'S STOCK PRICE -- THE SO-CALLED
"LEBOW PREMIUM." THE FACTS DO NOT NECESSARILY SUPPORT THIS.
. The Company believes the stock price increase is more
appropriately attributed to the following:
i) the spotlight that has been put on the Company's strategic
plan and performance,
ii) the clear identification of the Company's business plans and
criteria needed to do a spin-off,
iii) an improving market for tobacco companies generally, and
iv) the naming of Steve Goldstone as CEO of the Company, his
focus on stockholder value and his reinvestment and payment
policies.
. LeBow/Icahn have not offered to pay a premium to purchase the
Company's stock. They have simply asserted that stockholders
should trust the judgment of LeBow and Icahn over that of the
Board.
. THE COMPANY BELIEVES THAT LEBOW/ICAHN'S REAL MOTIVE IS TO TAKE
CONTROL OF THE COMPANY IN ORDER TO CAUSE THE COMPANY TO ACQUIRE
LEBOW'S LIGGETT AT AN INFLATED VALUE.
. LeBow first proposed this type of transaction in May. He sought
a profit of $1 billion at stockholders' expense.
. The Company believes that the sale of Liggett to RJR continues to
be LeBow's objective. His agreements with Icahn contemplate that
Icahn will be paid $50 million if LeBow accomplishes such a
transaction.
. If LeBow's hand-picked nominees, a majority of whom are
affiliates of LeBow, are elected to the Board, LeBow will control
the Company, and the shareholders will have no guarantee of a
spin-off.
. Many independent analysts also question LeBow/Icahn's real
agenda.
PROPOSAL 2: AMEND BY-LAWS TO (I) ALLOW HOLDERS OF 25% OF THE COMPANY'S
STOCK TO CALL A SPECIAL MEETING AND (II) DELETE THE PROVISION WHICH SETS
FORTH THE ADMINISTRATIVE PROCEDURES FOR A CONSENT SOLICITATION.
The Special Meeting By-law:
. THE COMPANY BELIEVES THAT LEBOW/ICAHN'S PURPOSE IN SEEKING THIS
AMENDMENT IS TO FACILITATE THEIR SCHEME TO GET CONTROL OF THE
COMPANY WITHOUT SUPPORT FROM A MAJORITY OF THE OUTSTANDING VOTING
STOCK.
. The Company believes that this is part of their plan to get
control of the Company and then cause the Company to acquire
Liggett at a profit to LeBow's Brooke Group of $1 billion.
. At a special meeting, a plurality of the voting shares (which may
theoretically be one share more than 25% of the outstanding
voting shares) can effect corporate action. Action by written
consent can be effected only with the support of 50% or more of
the Company's outstanding voting shares.
. The Company believes that it is not in the best interests of
stockholders to permit a small, dissident group of stockholders
to force the Company to take corporate action without the support
of a majority of the Company's voting stock.
. THE COMPANY'S CHARTER AND BYLAWS ALREADY PROVIDE EFFECTIVE CORPORATE
DEMOCRACY.
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. The Board is not classified. Stockholder action may be taken at
any time by written consent.
The Administrative Procedures By-law:
. THIS IS A COMPLETE "RED HERRING."
. The By-law gives participants the opportunity to understand the
administrative procedures to be followed in a consent
solicitation and ensures a fair and orderly process.
. LeBow/Icahn's only stated objection is that the By-law permits
the Board 20 days to set a record date. The Board set the record
date as January 12, 1996, the very date requested by LeBow and
Icahn.
B. THE BROADER PERSPECTIVE
. THE COMPANY BELIEVES THAT ITS MOST IMPORTANT TASK AT THIS TIME IS
ADDRESSING THE FUNDAMENTAL BUSINESS ISSUES WHICH HAVE DEPRESSED THE
VALUE OF ITS STOCK.
. For the past 6 years, RJR Nabisco has been coping with the adverse
effects of more than $29 billion of debt incurred in the 1989 LBO --
the largest debt-financed buyout in U.S. history. The effects of
the required debt reduction program were compounded by a costly
price war in the domestic tobacco industry. The exit of KKR had a
negative impact on the Company's stock performance in 1995.
. The Company has made significant progress through the development
and implementation of long-term strategies in its tobacco and food
businesses. These strategies already have produced lasting
improvements to the Company's core businesses, but the full benefit
of these programs will not begin to materialize until later this
year, when we anticipate significantly improved cash flows.
i) The domestic tobacco company is showing signs of market share
stability for the first time in many years, importantly, in its
higher-margin full price brands.
ii) The international tobacco company is renewing its strong
growth trend.
iii) The food company is rolling out a steady stream of new
products and entering new international markets.
. STEVE GOLDSTONE'S TOP PRIORITY IS INCREASING THE VALUE OF THE RJR
NABISCO STOCK.
. Steve's compensation is closely tied to stock performance. He will
receive 200,000 shares of restricted stock if the stock price is
$43.75 or higher in three years. If the stock is below $43.75 none
of this stock vests.
C. CONCLUSION
IN VIEW OF THEIR PAST HISTORY OF SELF-DEALING (LEBOW), GREENMAIL
(ICAHN) AND BANKRUPT COMPANIES (BOTH) AND THEIR EXPRESS INTENTION TO
CAUSE THE COMPANY TO VIOLATE ITS COMMITMENTS, THE COMPANY BELIEVES
THAT NO STOCKHOLDER SHOULD SUPPORT ANY OF THE LEBOW/ICAHN PROPOSALS
AND STOCKHOLDERS WITH FIDUCIARY RESPONSIBILITIES SHOULD BE
ESPECIALLY WARY OF SUPPORTING LEBOW AND ICAHN.
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