Questions for RJR Nabisco 1. Use the APV valuation method to determine the value per share of RJR Nabisco under (i) The pre-bid operating plan (ii) The management group operating strategy (iii) KKR’s operating strategy Assume that the number of outstanding shares is 229 million. I will collect valuation numbers in class so make sure you hold on to a copy of your memo. 2. What accounts for the difference of the three operating plans? The three operating plans generally
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Buyout of RJR Nabisco In 1988‚ a war was launched for the control of RJR Nabisco. It ended at the end of the year when KKR won the bidding war with a $ 109 per share offer and took RJR Nabisco private. Before the details of the leveraged buyout (LBO) are discussed‚ it is important to understand what made RJR Nabisco so attractive. RJR Nabisco was a conglomerate company that was involved in mainly two industries. It had divisions in the tobacco and food industries. In the tobacco division‚ RJR was the
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Case Study RJR Nabisco Fair Value Per Share Jacob Dobrovolny November 18‚ 2014 Executive Summary The RJR Nabisco case study was used to implement concepts that I have learned in class during the semester and apply it to the real world. The Nabisco case allowed me to develop my skills by using an Excel Worksheet‚ understanding how to calculate the fair value price per share‚ and determining the fair value price per share by changing the tax rate and growth rate. First
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RJR Nabisco RJR NABISCO AGENDA Historical Perspective LBO Candidate Special Committee Key Players Valuations Risk Factors Post LBO Plans Final Takeover Historical Perspective Started in 1875 as a tobacco firm. In 1967 ‚ RJR entered in food‚ restaurant‚ alcohol and shipping business. In 1987: - Food Business: $9.4 billion - Tobacco Business: $ 7 billion LBO Candidate Operating under low debt Exhibited long term and non cyclical growth RJR’s break up value: Nabisco $8 to $9
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Summary of the Case RJR Nabisco was an American conglomerate selling tobacco and food products. It was formed in the year 1985 by the merger of Nabisco Brands and R J Reynolds Tobacco Company. The case given discusses the leveraged buy out of the company‚ which was at that time the largest LBO in history. A leveraged buyout can be defined as a situation where an investor group‚ which often includes some of the target company’s top managers‚ borrows billions to try to take the company private by
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RJR NABISCO CASE Guzmán Colilla Barreiro Asset Valuation 02/04/15 Questions for RJR Nabisco case 1. What was the value of RJR Nabisco under Asset Beta: = 0.50 = 0.92 Ba=(0.50+0.92)/2 = 0.7 Assume that Rf = 9% (from the Marriott Case) Assume that Rp=8% (from the Marriott Case) Ka = Rf + BARp Ka = 9% + (0.7)(8%) = 14.6% a) The pre-bid operating strategy? b) The Management Group’s strategy? c) KKR’s operating strategy? 2. What accounts for any difference in the
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firms to acquire RJR Nabisco. Finally‚ the private equity takeover firm‚ Kohlberg Kravis and Roberts & Co (commonly referred to as KKR) was responsible for the 1988 leveraged buyout of RJR Nabisco. This was documented in several articles in The Wall Street Journal by Bryan Burrough and John Helyar. These articles were later used as the basis of a bestselling book‚ Barbarians at the Gate: The Fall of RJR Nabisco‚ and then into a made-for-TV film. As a result‚ in February 1989‚ RJR Nabisco paid executive
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RJR Nabisco Case Study 1. The RJR Nabisco Company passed trough some amazing facts of its financial life in the years of operating‚ starting as a tobacco company in 1875. In order to analyze RJR Nabisco company as a potentially candidate for leverage buyout (LBO) it is important to understand that all firms may be the targets of a leveraged buyout‚ but because of the importance of debt and the ability of the acquired firm to make regular loan payments after the completion of a leveraged
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RJR Nabisco • Some genius invented the Oreo. We’re just living off of the inheritance. F. Ross Johnson Fair Market Value • Fair Market Value: “…the price at which the asset would trade between two rational individuals‚ each in command of all of the information necessary to value the asset‚ and neither under any pressure to trade.” Rocky Higgins Analysis for Financial Management (p. 318) Capital Budgeting 101 • Step 1: Estimate Discount Rate • Step 2: Project Cash Flows – Cash flows for 1989-98
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A Book Review Barbarians At The Gate The Fall of RJR Nabisco By Bryan Burrough and John Helyar Barbarians at the Gate has been called one of the most influential business books of all time - the definitive account of the frenzy that overtook Wall Street in October and November of 1988 from the leveraged buyout of RJR Nabisco‚ Inc. by Kohlberg Kravis Roberts & Co. for $24.9 billion. It was the largest takeover in Wall Street history. It was co-written by Bryan Burrough and John Helyar
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