KKR 杠杆收购案例分析

Nov. 29, 1988
• Three competitors submitted the final bids:
– KKR: $24 billion, or $105.88 per share – Management-led group: $22.9 billion, or $101 per share – First Boston: $23.38 ~ $26.11 billion, or $102.14~ 115 per share
KKR’s LBO of RJR Nabisco
Demos GUO Stephen SUN
Outline
1. 2. 3. 4. Background The History of the RJR Nabisco Takeover Why RJR Nabisco? Why KKR?
1. Background
Who is KKR?
• KKR & Co. L.P. is an American-based global private equity firm founded in 1976 • Co-founders: Jerome Kohlberg and cousins Henry Kravis and George Roberts, all of whom had previously worked at Bear Stearns • Jerome Kohlberg left KKR in 1987
• Up to now, KKR has completed over $400 billion of deals • In March 2010, KKR list its shares on the NYSE
2. History of the RJR Nabisco Takeover
The whole story started from the management team……..
Байду номын сангаас
3. RJR Nabisco is vulnerable
Oct. 24, 1988
• Key Players: KKR
– Kohlberg, Kravis, Roberts & Company (KKR)
• Proposal: tops the record bid with a $ 20.43 billion offer, or $89 per share
3. RJR Nabisco is cheap
• In Oct 19th, 1987, the stock price for RJR Nabisco is $55.875. All the competitors thought that the valuation for RJR Nabisco’s food business is dragged by the poor performance of its tobacco business. They considered the stock of RJR Nabisco as severely undervalued. • Low share price means that there is more room for a contest of acquiring the company. • Rewards from restructuring is very attractive to the barbarians at the gate.
2. RJR Nabisco is slow:
Actually, this could also be viewed as the result of being big. • In a much smaller company, the shareholders or the management team could use various strategy to resist an attack: poison pills, white knight, scorched earth… • But for a group as large as RJR Nabisco, none of these strategies would work out in a short period of time. • In a word, RJR Nabisco’s reaction is too slow, it could not spin off from an attack.
Nov. 16, 1988
• Forstmann Little left, RJR Nabisco’s stock price tumbled to $84 • ITT, which held RJR Nabisco bonds, sued RJR Nabisco over the decline in the bonds’ value • RJR Nabisco announced a deadline for bid: Nov. 19
Oct. 25, 1988
Shearson and KKR considered a combined bid
Oct. 26, 1988
Competition heated up as a joint deal is rejected
Oct. 27, 1988
• Salomon Brothers joined Shearson as a backer in the management-led offer. • KKR began its tender offer for $90 a share
Oct. 20, 1988
• Key Players: Management-led group
– F. Ross Johnson, CEO of RJR Nabisco – Shearson Lehman Hutton, Wall Street Investment Bank
• Proposal: $17 billion LBO at $75 per share
115 110 105 100 95 90 85 80 75
109
89 90 85 80 75 70
25-Oct 30-Oct
92 84
90.87
Offer Price Stock Price
4-Nov 9-Nov 14-Nov 19-Nov 24-Nov 29-Nov
70
20-Oct
3. Why RJR Nabisco?
Who is RJR Nabisco?
• RJR Nabisco, Inc., was an American conglomerate headquartered in the New York City • RJR Nabisco was the 19th-largest industrial concern in U.S. • It formed in 1985 by the merger of Nabisco Brands and R.J. Reynolds Tobacco Company Nabisco R.J. Reynolds
• Stock price jumped to $90.875
Nov. 30, 1988
• KKR claimed victory for the staggering price of $24.88 billion, or $109 a share • Compared with the initial offer on Oct. 20 by management-led group: $17 billion, or $75 per share
1. RJR Nabisco is big:
The group was profitable (the tobacco business had a margin of 58% at that time) and had a steady cash flow. This could provide three reasons for an MBO or LBO: • Steady cash flow could make sure the interest is covered. • New debt will have a tax shield effect and the new management team could use a better capital structure to increase firm value. • No one could swallow such an elephant in a short time, that is why Ross Johnson expected no competitor at first when he proposed the offer. First Boston is a good example for this.
Nov. 3, 1988
Management-led group raised the price to $92 per share
Nov. 4, 1988
• Forstmann Little, another private equity firm, joined the battle with a higher bid • Shearson accused Forstmann of breach of promise
Nov. 19, 1988
• All potential buyers, KKR, First Boston, and management-led group, spent the day explaining their complex bids to RJR Nabisco’s directors • RJR Nabisco announced a new deadline, Nov. 29
Introduction
• In 1988, RJR Nabisco was purchased by Kohlberg Kravis Roberts & Co. (KKR) via leveraged buyout • The leveraged buyout was in the amount of $25 billion, one of the largest in the history • This deal has been regarded as a landmark in financial industry, as well as in the textbook
Nov. 18, 1988
• Just before the deadline, First Boston, another investment bank in Wall Street, joined this battle with a higher price • However, the financing for this offer is uncertain
Oct. 28, 1988
RJR Nabisco agreed to give KKR confidential financial data about its operations
Nov. 1, 1988
• RJR Nabisco’s chairman, Charles E. Hugel, said it was highly likely that the company will be sold, the company’s stock rose to $85 a share • Some KKR’s investors balked at allowing KKR to use their cash in this buyout