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Nabisco

In: Business and Management

Submitted By coldhartsicy
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Introduction RJR Nabisco LBO in 1988, a deal valued at $25 – billion US was well known as the largest company leverage buyout that ever happened in history which marked the end of 1980 decade of greed (Olive,1999). It was also viewed as the deal that was too big, too loud and too out of control (Burrough, 1999). The story was started when the market price of the company’s common stock was considered by the CEO of RJR Nabisco, F. Ross Johnson to be wildly undervalued and did not reflect its true value (Burrough & Helyar, 2009). When the share price of the company stayed at $56 per share, Johnson decided to take on a LBO of RJR Nabisco so that the market price of the stock could be increased (Ruback, 2006). Johnson then cooperated with Shearson Lehman Hutton as one of the candidates that participated in RJR Nabisco buyout (Bruner, 2004).
RJR Nabisco has shown to become an attractive candidate for LBO. It is proved by the participation of some large companies such as Kohlberg, Kravis, Roberts and Co. (KKR), First Boston and Forstman Little that attracted to participate on the bid (Ruback, 2006). The various characteristics of the RJR Nabisco such as steady growth, minimum capital investments and also the small range of debt (Michel & Shaked, 1991) have made the company being targeted for good reputation and personal wealth (Ruback, 2006).
The bidding process has undergone several steps. There were various factors and considerations that need to be made by the board of directors before they choose the end winner. According to Michel & Shaked (1991) the board is not only focusing to who gives the highest price but also to make sure that all the shareholders and stakeholders could get long term benefits as a result of the process. The final decision that was made by the board is accepting the bid which offered by KKR with $109 per share (Ruback, 2006).

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