As causes, various observers cited the troubles and ultimate bankruptcy of Drexel Burnham Lambert, the savings and loan crisis, the financial distress of Campeau Corporation, and fears that economic recession would trigger numerous junk bond defaults. The board’s five-person special committee wanted to provide existing share- holders with an option to participate in the buyout and thus share in any future KKR profits from the transaction. Capital expenditures Increase in working capitalg Plus: The board asked interested bidders to submit two bids one for the whole company and one for the tobacco business only. To participants in its funds, KKR charged 1. Food sales were forecast to grow at 8. With just a few weeks until closing, the sellers asked to renegotiate the terms of the seller note that had been agreed to early in the acquisition process.

When the seller rejected this offer, Medoff was considering whether he should abandon the deal and either resume his search or switch to a more traditional employment path. The market obviously saw substantial risk that the reset would fail, which would put RJR in violation of its bond covenants. Capital expenditures Increase in working capitalg Plus: Subordinated Discount Debentures due However, in December, , Moody’s failed to give the issue an investment-grade rating.

These bonds carried a provision which stipulated that the interest coupon would be reset in December, so that the bonds would trade at slightly above par.

In recent times, many companies had been repurchasing their “junk” securities: The board defined its task not as just getting the best immediate price for RJR, but as ensuring that shareholders did not get locked out of possible future gains.

Except for nabicso stumbling block created by Moody’s downgrade, the plan had proceeded as forecast: LIBOR plus basis points.


RJR Nabisco Harvard Case Solution & Analysis

It played an active role in structuring the bidding rules, monitoring and adjusting the bidding process, and choosing the winning bid. With respect to the reset provision however, KKR faced a richer array of alternatives, although just about any financial restructuring would require the consent of the banks in view of the tight restrictions imposed by the Credit Agreement discussed below. Stury Projections Historically, RJR Nabisco’s tobacco operations provided just over half of the company’s sales and about three fourths of its profits.

Its debt to equity ratio is.

rjr nabisco case study hbs

If in case it will deny then, they should contract to ensure that the RJR Nabisco will. Assets that are planned to be sold are included at estimated fair market jabisco under “Net assets available for sale.

Subordinated Extendible Reset Debentures due This will ensure that they. So, the increase in interest and reduction in.

Importantly, the banks’ reach extended upward to Group and Holdings. The cost is not so big; it is the. Pays at maturity. About the Author Richard S. Caxe if they sell the food segment and hbss on their core tobacco business then their total.

There was considerable speculation as to how KKR might try to deal with the reset problem, the resolution of which had now become intertwined with the bridge loan refinancing. Already there was a complete ban on smoking on domestic flights, and numerous state laws were restricting smoking in the work place.

He had been in these positions in the s and early s and was known for emphasizing the company’s responsibility to stakeholders primarily employees and communities.

These are the good terms which they have incorporated into the auction so that nabizco bidding. How Does it Work?


Prior to the first round of bidding, the board announced that the bidding deadline would not be extended.

RJR Nabisco by david Perales on Prezi

On April 12,RJR discontinued its practice of buying tobacco liability insurance, becoming self-insured for all tobacco-related product liability risks. Figures do not take into account capital gains taxes.

rjr nabisco case study hbs

Technology and Operations Management. Exhibit 1 summarizes this structure and describes the various securities issued by each of these entities. The case explores the rationale for the acquisition and its evaluation, including the reasonableness of the financial model and its sensitivity to alternative assumptions. Great Eastern Premium Pet Food was a regional distributer of pet food products that operated in a highly competitive environment, with low profit margins, and no exclusive products.

If Holdings’ financial advisors, on the one hand, and Dillon and Lazard, on the other hand, are unable to agree on the Fixed Rate within three business days, Holdings’ financial advisors, on the one hand, and Dillon and Lazard, on the other hand, shall appoint an independent nationally recognized investment bank to determine the Fixed Rate and such determination by such bank shall be final.

But RJR Nabisco is. Roberts, then 50, 32, and 33 years old, respectively. Transforming a complex set of financing instruments into a simple estimate of the cost of capital requires many approximations and simplifications. KKR first attracted serious notice in when it took Houdaille Industries, the firm’s first major New York Stock Exchange-listed company, private in a leveraged buyout.