Monday, Oct. 01, 1984

Reynolds Returns to Its Roots

Starting in the 1960s, corporate America went on a binge of conglomerate building. Companies pursued mergers and acquisitions with abandon, creating business empires that often manufactured hundreds of diverse products, from bread to computers. Many companies have begun to doubt the theory that management expertise in one field means success in another. Such huge combines as ITT, Gulf & Western and RCA have been selling holdings to streamline operations. Last week, in one of the biggest divestitures to date, R.J. Reynolds Industries, the second-largest U.S. cigarette manufacturer, took a back-to-basics step by selling its energy businesses to Phillips Petroleum for $1.7 billion. The units sold include Aminoil, an oil and gas exploration concern, and Geysers Geothermal, which produces steam for power generation in California. It was the second major divestiture of the year for Reynolds. In June the company spun off its containerized shipping subsidiary Sea-Land to shareholders.

Reynolds will focus on its consumer products, which in addition to cigarettes include Canada Dry soft drinks and Del Monte foods. For the slimmed-down company, tobacco will account for an estimated 76% of earnings, up from 67% in 1983.