Wednesday, December 23, 1998

"Nobody ever did anything very [F]oolish except from some strong principle." -- Lord Melbourne

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Icahn Seeks Nabisco Spin-Off

Investor Carl Icahn is hoping that the third time's a charm. Icahn raised his stake in RJR Nabisco Holdings (NYSE: RN) to 5.6% and is again seeking to split up the company's tobacco and snack food businesses. He's giving RJR until its May 12 annual meeting to spin off its 80.6% interest in Nabisco Holdings (NYSE: NA) before trying to elect new directors who would back his plan. This would be Icahn's third attempt to separate the two businesses -- he mounted similar proxy battles in 1995 and 1996.

Icahn and other proponents of a spin-off argue that such a move would help unlock value in Nabisco by freeing it from the legal problems plaguing the tobacco side of the business. They believe RJR's shares are undervalued -- the stock price has dropped 21% in the last year amid a breakdown in its Russian cigarette business and contentious wrangling over a tobacco settlement. The company actually agrees about the spin-off, just not the timing. "These businesses would be better off separated, and we are working towards that goal,'' a company spokeswoman told Bloomberg, adding that CEO Steven Goldstone recently met with Icahn regarding a possible spin-off.

According to an SEC filing, Icahn has 18 million RJR shares, bought at a cost of $477.4 million, which makes him the company's second-largest shareholder after Capital Research & Management's 22 million share stake. Even if Icahn loses yet another proxy fight, he could likely walk away with a huge profit -- last time around, he sold his 7.3% stake in February 1997 for a profit of roughly $130 million.

Speaking of selling off businesses, Salomon Smith Barney says that RJR will probably sell its international tobacco unit, valued at up to $6 billion, as early as the first quarter of next year. The brokerage upped its rating on the company to "buy" from "outperform." Separately, an RJR marketing unit, Northern Brands International, pleaded guilty to helping to smuggle cigarettes into Canada instead of shipping them overseas to avoid paying the federal excise tax of $0.24 a pack. As part of the plea, the unit paid a $5 million fine and forfeited an additional $10 million. For its part, RJR says Northern Brands' actions are "inconsistent" with the way it does business, and it has closed down the unit.

News to Go

Merrill Lynch analyst Tom Kurlak has done an about-face and upgraded his rating on Pentium chip maker Intel Corp. (Nasdaq: INTC) to "accumulate" from "neutral." The influential semiconductor analyst set a 12-month price target of $144 and increased his 1999 earnings estimate to $4.25 from $3.60 a share. The company finished down $3 5/8 yesterday to $119 1/16.

Standard & Poor's announced it will (finally) add America Online (NYSE: AOL) to the S&P 500 Index after the close of trading on New Year's Eve, replacing Foot Locker parent Venator Group (NYSE: Z), formerly known as Woolworth and formerly a component of the Dow Jones Industrial Average. AOL's addition worries some investors who fear that the stock will drive up the S&P 500 to an unjustified high multiple.

Computer networking company 3Com Corp. (Nasdaq: COMS) reported earnings for its fiscal second quarter (ended Nov. 27) of $0.36 per share, up from $0.26 last year and better than analysts' mean estimate of $0.31. Sales of $1.54 billion were 10% higher than the preceding quarter and 29% higher than the same year-ago quarter.

The world's second-largest automaker Ford Motor Co. (NYSE: F) reportedly held a series of meetings with Volvo AB's (Nasdaq: VOLVY) CEO Leif Johansson, and the two are "well on their way" to reaching "some sort of deal." Separately, Ford reportedly has unloaded most of its stake in bankrupt Kia Motors Corp. of Korea to another foreign investor.

The world's largest PC distributor Ingram Micro (NYSE: IM) warned that it expects Q4 EPS of $0.48 to $0.50, short of analysts' expectations of $0.56, due to lower-than-expected computer sales.

Enterprise software company Manugistics Group (Nasdaq: MANU) reported a wider-than-expected fiscal Q3 loss of $0.39 a share, down from a profit of $0.14 per share in the year-earlier period. Analysts had predicted a loss of $0.06 a share.

Auto-parts retailer Pep Boys-Manny, Moe & Jack (NYSE: PBY) announced plans to buy back up to 10 million shares, or 16% of its common stock, for between $13.50 and $16 a share through a Dutch auction starting today and ending January 22.

And finally, it looks like the New York Stock Exchange won't have to change its name to the New Jersey Stock Exchange. The NYSE reached a preliminary deal with the city and state of New York to stay in Manhattan. The price? The city and state will have to cough up a record $560 million in subsidies, tax breaks, and other benefits to build a 60-story office tower to house the NYSE. "Today we strike a deal that keeps the Y in NYSE," said one NYSE official.

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Yi-Hsin Chang (TMF Puck), Writer
Brian Bauer(TMF Hoops), Editor