It therefore asked for a sealed bid, thus discouraging alliances between groups. However, this was one of KKR’s least attractive alternatives, since its strategy was to develop rather than liquidate RJR’s major food businesses. Estimates by Salomon Brothers, May 16, Pre-buyout Debt Bank Debt Optional debt repayments: In the spring of , the bonds were selling at steep discounts to par Exhibit 3.

Same interest rate provisions as on the Senior Converting Debentures described above. On April 12, , RJR discontinued its practice of buying tobacco liability insurance, becoming self-insured for all tobacco-related product liability risks. For example, without the banks’ permission, funds raised through an equity issue by Holdings could not be used to buy back junior debt. The RJR Nabisco should select the highest bid by considering the easy payment method. In other words, conditions of oversupply and not necessarily poor fundamentals could have been causing the depressed prices of the reset bonds. 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.

The RJR buyout is a classic example of how the bidding process itself can affect the outcome. Failing such a reset, the bonds would become due and payable almost immediately.

RJR Nabisco Harvard Case Solution & Analysis

While KKR promised to keep the tobacco and most of the food business intact, the management group planned to keep only the tobacco business see Table Z. KKR quickly read the board’s mind and announced its plan to install J. So, in they will be able to earn revenue. Any of the above approaches would have the effect of reducing or eliminating the number of reset bonds outstanding.


Transforming a complex set of financing instruments into a simple estimate of the cost of capital requires many approximations and simplifications. In the spring ofthe bonds were selling at steep discounts to par Exhibit 3.

Etudy Floating Rate Notes due Listed on the NYSE. Keeping its options open, KKR did not disclose its longer-term plans.

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Increasing Rate Notes due Under pressure from their constituencies, university endowments and public pension funds were beginning to divest themselves of tobacco securities.

Conceivably, with an external funds infusion, it might not even be necessary to repurchase any of the bonds, since a strengthened balance sheet might give sufficient boost to their values.

Faced with an unreceptive public market, KKR withdrew the debt offering and began discussions with RJR’s lending banks.

The state district court judge in Texas agreed with plaintiffs’ contention that the LBO was a fraudulent scheme designed to shield the company from asbestos litigation. Furthermore they have incorporated that it is the right of the board of directors whether to. KKR had put its money where its mouth was, something the management group had been unwilling to ejr. Business and Environment Business History Entrepreneurship.

RJR Nabisco Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Many participants in the fund had invested money with KKR since the beginning of the decade. Medoff attempted to negotiate modifications to the sellers’ note that would offer more security but would not include additional personal guarantees. Exhibit 1 summarizes this structure and describes the various securities issued by each of these entities. Callable nanisco par at any time.


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Amounts shown were not necessarily outstanding simultaneously. In other words, conditions of oversupply and not necessarily poor fundamentals could have been causing the depressed prices of the reset bonds.

On a purely monetary basis, the two offers were very dose; the final decision was based on other factors.

Exhibit 5 also gives a cash flow analysis based on the above projected operating results. Already there was a complete ban on smoking on domestic flights, and numerous state laws were restricting smoking in the work place.

The balance sheets on December 31, and March 31, are those of the consolidated hbbs. When they consider the old method of operation of the business then the rjg of the business. To avoid this, RJR’s board emphasized that it would not allow potential bidders to “pre-sell” businesses that is, obtain commitments in advance to divest themselves of the company’s mabisco.

Cite View Details Purchase Related. The two PIK reset issues differed in essentially two ways: Prior to the first round of bidding, the board announced that the bidding deadline would not be extended.

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And this KKR accomplished with a professional staff of fewer than two dozen. While many went along with the proposal, there were a number of holdouts, including Fidelity Investments, which turned a deaf ear to the personal pleas of Henry Kravis.

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