Rjr Nabisco Case Summary

When the RJR Nabisco buyout happened many factors were in play from the two competitors in play to buy the company first was Ross Johnson’s management, a group who had originally come to the table with a 75 dollars a share offer. Then when the news came out about the LBO Kohlberg, Kravis and Roberts or KKR were bidding 90 dollars a share for RJR Nabisco. Now with two competitors in play it was now a game of who may put together the highest bid or the best bid possible to buy the company. What we decided as a group was yes Ross Johnson had the highest bid, but we think Ross Johnson’s group should have won the company because there were incentives with Ross Johnson’s group taking over the company instead of what happened with

Which is exactly What KKR had to do when they won. They had to sell off parts of the company off to pay for debt that they had dug themselves into buying the company. After KKR had completed the buyout, then had to shed about 46,000 employees after 1998 consequently they ended up having to sell off 6.2 billion dollars in assets to help get rid of the debt that they had incurred in taking over the company. During the First years of the KKR Reign the equity for the company fell from 24% to 16% from 1998 through 1994. We think that if Ross Johnson was able to take over the company for the original offer of 75 dollars a share things would have turned out a lot better for Nabisco because they shouldn’t have had to sell of as many assets or shed as much of the labor Force as KKR did when they bought the

So if Charlie Hugel and the shareholders wanted the best offer for the shares why didn’t they take the Ross Johnsons offer probably because they wanted to make sure Ross Johnson didn’t get the company because they thought all of his motives were all out of greed because they first started getting the idea after he offered Charlie Hugel and Albert Butler a spot on the post LBO board which Hugel thought was bribed to make both of them look at Ross Johnsons offer favorable. So we as a group came to a decision that Ross Johnson’s group was hindered in terms of buying the company because everyone thought all of his motives were all filled with greed so, then Charlie Hugel and shareholders made sure that Ross Johnson didn’t get the company in the buyout Instead taking the lesser off of KKR three dollars less than the management groups offer for the company. The economic objectives of the RJR Nabisco Buyout were to try and grow the company along with realize economies of scale and scope by getting to the point where they were making their products while doing it at a cost effective manner than what they had been