Nrj Aquisition

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This document is authorized for use only by Mohammed Chaudhury until May 2012. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860. 9-289-056
REV: AUGUST 29, 2006

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Professor Richard Ruback prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

Copyright © 1989 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

RICHARD RUBACK
RJR Nabisco

On October 20, 1988, Charles E. Hugel, the chairman of RJR Nabisco, was appointed chairman of the Special Committee. The Special Committee (Exhibit 1) was formed to consider a proposal to purchase the company for $17 billion by a group consisting of F. Ross Johnson, the president and chief executive officer of RJR Nabisco; Edward A. Horrigan, the vice chairman of RJR Nabisco and chief executive officer of RJ Reynolds Tobacco Company; and the investment banking firm of Shearson Lehman Hutton (the Management Group). At $75 a share, the buyout offer was 34% above the preoffer price of $55.875. No details about the form of the offer were immediately available.1 Within four days, Kohlberg, Kravis, Roberts & Co. (KKR), a firm specializing in leveraged buyouts, announced a competing tender offer for RJR Nabisco. The KKR bid was for $90 a share, or about $20.3 billion in total.

Company Background
RJR Nabisco began as a tobacco company in 1875 and remained primarily a tobacco company until the RJR Foods subsidiary was formed after a series of acquisitions in 1967. By 1987, the company’s sales had grown to $15.8 billion (Exhibit 2), and assets stood at $16.9 billion (Exhibit 3). The tobacco business included established brand-name cigarettes such as Winston, Salem, Camel, and Vantage and also included products such as Planters nuts and LifeSavers candies. The business segment data in Exhibit 4 show that the tobacco business had sales of $6.3 billion and operating income of $1.8 billion in 1987.

The food businesses initially included Hawaiian Punch beverages, Chun King oriental foods, My- T-Fine puddings, Davis baking powder, Vermont Maid syrup, and Patio Mexican dinners. Del Monte, which was acquired in 1979, added canned goods and fresh bananas and pineapples. RJR Nabisco’s food business expanded substantially with the 1985 acquisition of Nabisco Brands, which added brand names such as Oreo, Fig and Fruit Newtons and Chips Ahoy! cookies; Ritz, American Classic, and Quackers crackers; Nabisco Shredded Wheat cereal; Fleischmann’s margarine; A-1 Steak Sauce; Ortega Mexican foods; and Milk-Bone dog biscuits. In 1987, the food business had sales of $9.4 billion and an operating income of $915 million.

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The directors of RJR Nabisco viewed Johnson's consideration of a buyout as material information and disclosed the buyout proposal when it was discussed by the board.
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This document is authorized for use only by Mohammed Chaudhury until May 2012. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860. 289-056 RJR Nabisco

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RJR Nabisco had also entered and exited several lines of business. Sea-Land, a...
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