RJR Nabisco
Encyclopedia
RJR Nabisco, Inc., was an American
conglomerate
formed in 1985 by the merger of Nabisco
Brands and R.J. Reynolds Tobacco Company
. RJR Nabisco was purchased in 1988 by Kohlberg Kravis Roberts & Co.
in the largest leveraged buyout
at the time.
In 1999, due to concerns about tobacco
lawsuit liabilities, the tobacco business was spun off into a separate company, and RJR Nabisco was renamed Nabisco Holdings Corporation. Nabisco is currently owned by Kraft Foods
.
The RJR Nabisco leveraged buyout was, at the time, widely considered to be the pre-emininent example of corporate and executive greed. Bryan Burrough
and John Helyar published Barbarians at the Gate: The Fall of RJR Nabisco
, a successful book about the events which was later turned into a television movie
for HBO.
was the President and CEO of RJR Nabisco at the time of the leveraged buyout and Henry Kravis
was a general partner at Kohlberg Kravis Roberts & Co. The leveraged buyout
was in the amount of $25 billion, and the battle for control took place between October and November 1988.
Although KKR eventually took control of RJR Nabisco, RJR management and Shearson Lehman Hutton had originally announced that they would take RJR Nabisco private at $75 per share. A fierce series of negotiations and proposals ensued which involved nearly all of the major private equity players of the day, including Morgan Stanley
, Goldman Sachs
, Salomon Brothers
, First Boston
, Wasserstein Perella & Co.
, Forstmann Little, Shearson Lehman Hutton, and Merrill Lynch
. Once put in play by Shearson Lehman Hutton and RJR management, almost every major Wall Street firm involved in M&A launched frenzied, literal last-minute bids in a fog of incomplete or misleading information.
KKR quickly introduced a tender offer to obtain RJR Nabisco for $90 per share—a price that enabled it to proceed without the approval of RJR Nabisco's management. RJR's management team, working with Shearson Lehman Hutton and Salomon Brothers, submitted a bid of $112, a figure they felt certain would enable it to outflank any response by Kravis. KKR's final bid of $109, while a lower dollar figure, was ultimately accepted by the board of directors.
KKR's offer was guaranteed, whereas management's lacked a "reset", meaning that the final share price might have been lower than their professed $112 per share. Additionally, many in RJR's board of directors had grown concerned at recent disclosures of Ross Johnson's unprecedented golden parachute deal. Time Magazine featured Ross Johnson on the cover of its December 1988 issue along with the headline "A Game of Greed: This man could pocket $100 million from the largest corporate takeover in history. Has the buyout craze gone too far?".
KKR's offer was welcomed by the board, and, to some observers, it appeared that their elevation of the reset issue as a deal-breaker in KKR's favor was little more than an excuse to reject Ross Johnson's higher payout of $112 per share. F. Ross Johnson received $53 million from the buyout, $23 million after taxes.
An article in Forbes
at the time discussed leveraged buyouts.
advertising agency for their commercial for Northwest Airlines
with the pitch that they no longer allow smoking in any of their flights. Saatchi and Saatchi was handling advertising for Nabisco products and not for any RJR tobacco products.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
conglomerate
Conglomerate (company)
A conglomerate is a combination of two or more corporations engaged in entirely different businesses that fall under one corporate structure , usually involving a parent company and several subsidiaries. Often, a conglomerate is a multi-industry company...
formed in 1985 by the merger of Nabisco
Nabisco
Nabisco is an American brand of cookies and snacks. Headquartered in East Hanover, New Jersey, the company is a subsidiary of Illinois-based Kraft Foods. Nabisco's plant in Chicago, a production facility at 7300 S...
Brands and R.J. Reynolds Tobacco Company
R.J. Reynolds Tobacco Company
The R. J. Reynolds Tobacco Company , based in Winston-Salem, North Carolina and founded by R. J. Reynolds in 1875, is the second-largest tobacco company in the U.S. . RJR is an indirect wholly owned subsidiary of Reynolds American Inc...
. RJR Nabisco was purchased in 1988 by Kohlberg Kravis Roberts & Co.
Kohlberg Kravis Roberts & Co.
KKR & Co. L.P. is an American-based global private equity firm, specializing in leveraged buyouts, based in New York. The firm sponsors and manages private equity investment funds. Since its inception, the firm has completed over $400 billion of private equity transactions and was a pioneer in...
in the largest leveraged buyout
Leveraged buyout
A leveraged buyout occurs when an investor, typically financial sponsor, acquires a controlling interest in a company's equity and where a significant percentage of the purchase price is financed through leverage...
at the time.
In 1999, due to concerns about tobacco
Tobacco
Tobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as a pesticide and, in the form of nicotine tartrate, used in some medicines...
lawsuit liabilities, the tobacco business was spun off into a separate company, and RJR Nabisco was renamed Nabisco Holdings Corporation. Nabisco is currently owned by Kraft Foods
Kraft Foods
Kraft Foods Inc. is an American confectionery, food and beverage conglomerate. It markets many brands in more than 170 countries. 12 of its brands annually earn more than $1 billion worldwide: Cadbury, Jacobs, Kraft, LU, Maxwell House, Milka, Nabisco, Oscar Mayer, Philadelphia, Trident, Tang...
.
The RJR Nabisco leveraged buyout was, at the time, widely considered to be the pre-emininent example of corporate and executive greed. Bryan Burrough
Bryan Burrough
Bryan Burrough is an American author and correspondent for Vanity Fair. He has written five books: Barbarians at the Gate , Vendetta: American Express and the Smearing of Edmond Safra , Dragonfly , Public Enemies and The Big Rich...
and John Helyar published Barbarians at the Gate: The Fall of RJR Nabisco
Barbarians at the Gate: The Fall of RJR Nabisco
Barbarians at the Gate: The Fall of RJR Nabisco is a 1990 book about the leveraged buyout of RJR Nabisco, written by investigative journalists Bryan Burrough and John Helyar. The book is based upon a series of articles written by the authors for The Wall Street Journal...
, a successful book about the events which was later turned into a television movie
Barbarians at the Gate (film)
Barbarians at the Gate is a television movie based upon the book by Bryan Burrough and John Helyar, about the leveraged buyout of RJR Nabisco.The film was directed by Glenn Jordan and written by Larry Gelbart. It stars James Garner as F...
for HBO.
The leveraged buyout
F. Ross JohnsonF. Ross Johnson
-Biography:Born in Winnipeg, Manitoba, into a lower-middle-class family, he used a military cadet scholarship program to attend the University of Manitoba where he graduated in 1952 with a Bachelor of Commerce degree and was a member of the fraternity Phi Delta Theta. He went on to earn an M.B.A....
was the President and CEO of RJR Nabisco at the time of the leveraged buyout and Henry Kravis
Henry Kravis
Henry R. Kravis is an American businessman and private equity investor. He is the co-founder of Kohlberg Kravis Roberts & Co., a private equity firm with over $62 billion in assets as of 2011. He has an estimated net worth of $3.7 billion as of September 2011, ranked by Forbes as the 88th richest...
was a general partner at Kohlberg Kravis Roberts & Co. The leveraged buyout
Leveraged buyout
A leveraged buyout occurs when an investor, typically financial sponsor, acquires a controlling interest in a company's equity and where a significant percentage of the purchase price is financed through leverage...
was in the amount of $25 billion, and the battle for control took place between October and November 1988.
Although KKR eventually took control of RJR Nabisco, RJR management and Shearson Lehman Hutton had originally announced that they would take RJR Nabisco private at $75 per share. A fierce series of negotiations and proposals ensued which involved nearly all of the major private equity players of the day, including Morgan Stanley
Morgan Stanley
Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
, Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
, Salomon Brothers
Salomon Brothers
Salomon Brothers was a bulge bracket, Wall Street investment bank. Founded in 1910 by three brothers along with a clerk named Ben Levy, it remained a partnership until the early 1980s, when it was acquired by the commodity trading firm Phibro Corporation and then became Salomon Inc. Eventually...
, First Boston
First Boston
First Boston Corporation was a New York-based, bulge bracket, investment bank, founded in 1932 and acquired by Credit Suisse in 1990. Together with its sister investment banks, it was referred to as CS First Boston after 1993 and part of Credit Suisse First Boston after 1996, the First Boston part...
, Wasserstein Perella & Co.
Wasserstein Perella & Co.
Wasserstein Perella & Co. was an investment bank established by Bruce Wasserstein, Joseph R. Perella, Bill Lambert, and one other founder in 1988, former bankers at First Boston Corp., until its eventual sale to Dresdner Bank in 2000 for some $1.4 billion in stock...
, Forstmann Little, Shearson Lehman Hutton, and Merrill Lynch
Merrill Lynch
Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
. Once put in play by Shearson Lehman Hutton and RJR management, almost every major Wall Street firm involved in M&A launched frenzied, literal last-minute bids in a fog of incomplete or misleading information.
KKR quickly introduced a tender offer to obtain RJR Nabisco for $90 per share—a price that enabled it to proceed without the approval of RJR Nabisco's management. RJR's management team, working with Shearson Lehman Hutton and Salomon Brothers, submitted a bid of $112, a figure they felt certain would enable it to outflank any response by Kravis. KKR's final bid of $109, while a lower dollar figure, was ultimately accepted by the board of directors.
KKR's offer was guaranteed, whereas management's lacked a "reset", meaning that the final share price might have been lower than their professed $112 per share. Additionally, many in RJR's board of directors had grown concerned at recent disclosures of Ross Johnson's unprecedented golden parachute deal. Time Magazine featured Ross Johnson on the cover of its December 1988 issue along with the headline "A Game of Greed: This man could pocket $100 million from the largest corporate takeover in history. Has the buyout craze gone too far?".
KKR's offer was welcomed by the board, and, to some observers, it appeared that their elevation of the reset issue as a deal-breaker in KKR's favor was little more than an excuse to reject Ross Johnson's higher payout of $112 per share. F. Ross Johnson received $53 million from the buyout, $23 million after taxes.
An article in Forbes
Forbes
Forbes is an American publishing and media company. Its flagship publication, the Forbes magazine, is published biweekly. Its primary competitors in the national business magazine category are Fortune, which is also published biweekly, and Business Week...
at the time discussed leveraged buyouts.
Controversy
On April 1988, RJR Nabisco fired the Saatchi & SaatchiSaatchi & Saatchi
Saatchi & Saatchi is a global advertising agency network with 140 offices in 80 countries and over 6,500 staff. It was founded in London in 1970 but now headquartered in New York. The parent company of the agency group was known as Saatchi & Saatchi PLC from 1976 to 1994, was listed on the London...
advertising agency for their commercial for Northwest Airlines
Northwest Airlines
Northwest Airlines, Inc. was a major United States airline founded in 1926 and absorbed into Delta Air Lines by a merger approved on October 29, 2008, making Delta the largest airline in the world...
with the pitch that they no longer allow smoking in any of their flights. Saatchi and Saatchi was handling advertising for Nabisco products and not for any RJR tobacco products.