RJR Nabisco LBO
Luke Silvestri
RJR Nabisco Inc.
• RJR Nabisco was an American
conglomerate corporation
• Formed by the merger in 1985 of R.J.
Reynolds Industries and Nabisco
Brands (already a merged company)
• R.J. Reynolds Industries focused on
tobacco and food products and
Nabisco Brands was an international
manufacturer of snack foods
• Implications: Johnson believed that
bad publicity surrounding tobacco
products was holding back the food
division of the company.
• Planned to take Nabisco private with
his management and to give the
shareholders the tobacco business.
• Needed to find a way to help the
failing business
F. Ross Johnson
• CEO of the original Standard
• RJR Nabisco’s two CEOs were
• Stayed on the merger and wrest
• Johnson spent very freely while
• Created more management
• When Johnson ran into problems
Brands
control of the new entity
compensation and perks
Johnson and Wilson
Wilson was more cost-conscious
with the new board due to his
spending habits, he replaced the
positions and some with friends
LBO?
• John began to ask investment
bankers for ideas
• Johnson initially didn’t like the idea
of owing money to a bank since
this would restrain his spending
• LBO was a new idea at time
• In 1982, investors put up $1 million
and borrowed $79 million and
bought Gibson Greetings
• About 18 months later, the
company sold for $290 million
• Brought a lot of attention to
corporate raiders
KKR (Kohlberg Kravis & Roberts)
• Johnson and KKR were talking
about potential LBO options
• Johnson feared the low stock price
would attract corporate raiders, so
he began to build defenses
• The talks between KKR and RJR
Nabisco dwindled due to Johnson
not responding
• Johnson spoke with Shearson
Lehman Hutton with his terms for
LBO
• Control of board and 20% stock
for himself and 7 managers (didn’t
put up any of his own money)
• This deal shocked the board and
investment team ($75 per share)
Bidding War/Resolution
• KKR came to offer $90 a share for the
company but didn’t want Johnson
anymore
• Continuous bidding occurred until KKR’s
deal of $109 per share was taken
• Johnson tried $112 with $84 in cash and
the rest in securities but KKR was chosen
instead.
• KKR deal was chosen since it allowed less
gutting of the company to pay off debts
• KKR proposed to distribute 25% equity
compared to the 15% from the
management group. More in line with the
board's objective of maximizing
shareholder participation in profits.
• Johnson was fired but still obtained 30
million golden parachute.
• One of the largest leveraged buyouts on
record.
Thank You!