NEW YORK (AP) _ RJR Nabisco Inc. broke off buyout talks with Kohlberg Kravis Roberts & Co. on Wednesday, raising the possibility of a hostile $20.3 billion offer as Wall Street gossiped about the two takeover titans' next move.

Following a meeting of Nabisco's directors, company President F. Ross Johnson said the group concluded Kohlberg Kravis's proposal to acquire Nabisco for $90 a share was ''not in the best interest of the company, its employees or the diverse communities it serves.''

The failure of the talks appeared to set the stage for a showdown between Kohlberg Kravis and Shearson Lehman Hutton Inc., Nabisco's financial partner, over what would be the nation's biggest corporate acquisition.

Many said the showdown would be between Henry Kravis and Peter Cohen.

Kravis is supervising his company's bid. Cohen is chairman of Shearson.

''They are competitors in the same arena. They know one another, but I don't know if they are good friends. They're both very cool individuals,'' said a takeover specialist who asked to remain anonymous.

''This is a bare-knuckle fight,'' he said. ''Neither of them is very cuddly.'

Johnson said Wednesday that Nabisco, a food and tobacco conglomerate, would continue to work with Shearson to ''explore the possibility of making an offer to acquire the company.''

Last week Nabisco's top managers said they were considering offering stockholders $75 a share, or $17 billion, to return the company to private ownership.

Nabisco stock was unchanged at $85 a share in heavy trading on the New York Stock Exchange.

A spokesman for Kohlberg Kravis said the firm had no immediate comment on its plans.

Kohlberg Kravis announced Monday that it was considering a takeover bid and under federal law has five business days in which to begin a tender offer if it decides to proceed.

Launching a hostile tender offer would be a milestone for Kohlberg Kravis. Since its founding in 1976, Kohlberg Kravis has never acquired a company without the support of the target's board, although the firm gradually has become more aggressive in its deal making.

Analysts say not only are the potential financial rewards astronomical in the Nabisco deal, but there is another major factor involved - prestige.

''There's a sense of one-upmanship in the financial markets,'' said one takeover lawyer, who spoke on condition he not be identified. ''These people want to say, 'We've done the biggest deal. We've done the most complicated deal. We're the best.'''

Nabisco's decision to stick with Shearson pits Kravis against Cohen.

The two have socialized and skied together in the past. Cohen has let slip in the press his astonishment that Kravis would be such a tough competitor after those outings.

But those who know them wonder just how close the pair was.

Cohen, young and abrasive, attends his daughter's softball games clad in Wall Street attire - grey suit, Burberry raincoat, dress shoes and clenching a cigar.

Kravis, a prominent socialite, is widely expected to go the distance to protect his company's lockup of mega-sized leveraged buyouts.

In an earlier era, the two sides worked together. Even earlier this year, Shearson served as Kohlberg Kravis's banker in two billion-dollar takeover deals.

One source close to the two sides said Kravis visited Cohen at Shearson's downtown Manhattan headquarters late Tuesday to propose a joint bid in which Kohlberg Kravis would serve as the lead, but he was rejected ''out of hand.''