Nabisco, R. J. Reynolds Hold Talks; Analysts Say Merger Is Possible

Nabisco Brands and R. J. Reynolds Industries said Wednesday that the two consumer product giants are holding “exploratory talks.” Wall Street analysts say the discussions could lead to a merger worth at least $4.6 billion.

Merger of the two companies would create one of the world’s largest consumer goods producers, with combined annual revenues that would be twice those of General Foods and almost 50% greater than those of Procter & Gamble.

Nabisco, based in Parsippany, N.J., announced the talks after requesting that trading in its stock be halted just before the close of the New York Stock Exchange. The company, whose products include Ritz crackers, Oreo cookies, Life Savers candy and Geritol tonic, said no “conclusion” had been reached.

Heard of Rumors

Reynolds, headquartered in Winston-Salem, N.C., confirmed Nabisco’s statement. The tobacco giant, whose product lines include Camel and Winston cigarettes, Kentucky Fried Chicken, Canada Dry soft drinks, Del Monte canned goods and Inglenook wines, has been seeking a way to gain the kind of prominence on grocery store shelves that Nabisco’s products have.

Neither company would describe the nature of the negotiations or comment further.

Bear, Stearns analyst Clinton O. Mayer III and Merrill Lynch analyst William Maguire said they have heard rumors for several weeks that Reynolds would make a bid for Nabisco.

“All I know is that if an offer is made it could be above $80 a share,” Maguire said. “I’ve heard that from several sources, including the floor of the (New York Stock) Exchange.”

An $80-per-share bid for Nabisco, which has about 58 million common shares outstanding, would be worth $4.6 billion. Maguire said he heard one report that put the the bid as high as $91 a share, a price he said would be “very generous.”

According to Standard & Poor’s, Nabisco had a book value of $20.84 a share in 1984 and an asset value of $3.8 billion.

Nabisco spokesman Michael M. Masterpool said the talks were announced Wednesday because the company’s stock “has been going up like crazy and we had to make a statement.”

Nabisco closed at $64.75 a share May 20. On Wednesday, it ended the day on volume trading of 549,300 at $71.375 a share, up $3.125 from Tuesday. The stock rose $2.375 a share Tuesday.

Reynolds’ Stock Off

Reynolds’ stock fell 87.5 cents on the Big Board Wednesday, closing at $75.25 on turnover of 212,100 shares.

Nabisco, which employs about 68,000 people, had a profit of $309 million on sales of $6.3 billion last year. In the first three months of this year, it earned $56.5 million on sales of $1.4 billion.

The company, which also makes Premium crackers, Blue Bonnet margarine, Aqua Velva after shave and Baby Ruth and Butterfinger candy bars, was created in July, 1981, through a merger of Nabisco and Standard Brands.

Its recent introduction of several new cookie products has helped boost sales, analysts said.

Owns Heublein

Reynolds, which employs about 97,000 people and is one of the world’s largest makers of tobacco products, earned $843 million on sales of $12.7 billion in 1984. In the first quarter of 1985, it had a profit of $182 million on sales of $2.9 billion. Reynolds also owns the Heublein liquor concern.

A combination of the two would produce a company about the same size as U.S. Steel, the nation’s 15th-largest industrial company, based on 1984 revenue.

Nabisco could also offer Reynolds a stronger foothold in China as well as on U.S. shelves: In March, Nabisco announced the formation of a joint venture with the Yili Food Co. of Peking to produce and market biscuits and crackers in China and for export.