Mass. Fund Wants Out of RJR Buyout

The Commonwealth of Massachusetts Pension Fund said yesterday it does not want its shares in an investment partnership, of which Harvard is a member, used in the hostile takeover of RJR Nabisco.

The Wall Street firm Kohlberg, Kravis, Roberts and Company, using funds from more than 70 investors has offered $20.3 billion for the tobacco and food company.

But both the Mass. fund and the ITT Corporation, which are limited partners in the bid, have complained that Kohlberg, Kravis, the general partner in the arrangement, is following a hostile takeover strategy, since RJR Nabisco's board of directors has not consented to the plan.

Harvard, however, has not expressed any concern about the takeover, though the Corporation, which owns the University, wrote letters to RJR Nabisco over the summer questioning the company's "heavy-handed" smoking promotion tactics in developing nations.

Harvard currently owns stock in RJR Nabisco, and so will profit from the partnership's takeover of the company and will also stand to gain from the purchase of the Nabisco stock.

The state fund has notified Kohlberg, Kravis that it wants to limit the use of its money not only because of allegations of a hostile takeover but also because RJR Nabisco is the fourth largest U.S. company doing business in South Africa, said Michael S. Lelyveld, press secretary for the Massachusetts Executive Office for Administration and Finance.

The pension fund, which has committed $50 million to the limited partnership, has a statute prohibiting investment of its assets in South Africa-related companies. Lelyveld said Massachusetts has not received a response to its request to stay out of the RJR Nabisco deal.

But officials at Harvard and ITT said yesterday that it was not possible to refuse funding for a specific takeover in a limited partnership.

Walter M. Cabot '55, the director of the Harvard Management Corporation, which manages Harvard's $4 billion endowment, said limited partners have little say in these operations because they have limited liability. He said the general partner--in this case Kohlberg, Kravis--has full control over specific investment decisions. He said that limited partners need at least a two-thirds majority to vote that the general partner is not adhering to the original terms of the partnership.

A spokesperson for ITT said that the original terms of the Kohlberg, Kravis partnership prohibited hostile takeovers. James T. Gallagher, ITT vice president for public relations, said that Kohlberg, Kravis claims it told all limited partners it would perform hostile takeovers if the board of thetargeted company had already tried to buy out itsown shareholders.

RJR Nabisco made such a move when it offered$17 billion for full control of the company lessthan two weeks before Kohlberg, Kravis made itshigher takeover offer. Gallagher added that ITTprobably could not legally withdraw from the deal.

But Lelyveld disagreed that investors could notrefuse to have their funds used for a specifictakeover. He said that the Commonwealth "has theright to elect not to participate in a given deal.It's not a matter of withdrawing money."

Kohlberg, Kravis officials could not be reachedfor comment yesterday.

"[Limited partnerships] are a legal form ofinvestment in which certain rights of the limitedpartner and the general partner are discussed andagreed upon beforehand and which usually lastabout 10 years," Cabot said. He said Harvardinvestigates the previous actions of generalpartners before investing in arrangements withthem but cannot rule on the firms' actions oncethey are involved in a long-term contract.

Cabot said Harvard owns a share in 50 to 60different limited partnerships, about 10 of whichare leveraged buyout partnerships. The remainderis in a variety of investment fields, includingventure capital firms.

Greg Connolly, an analyst and adviser for theMassachusetts Public Health Department and theWorld Health Organization, called on Harvard toattempt to refuse to fund the RJR Nabisco deal onethical grounds.

"What Harvard does will set the tone for thewhole nation, not what the Massachusetts pensionfunds does," Connolly said. "RJR has a policy ofmaking a profit off of human suffering.