Case Study Nabisco

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Case Study: RJR Nabisco
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July 20, 2013

One of the most famous leveraged buyouts (LBOs) that have has been studied is the RJR Nabisco LBO. There was also a movie made about this LBO entitled Barbarians at the Gate, which you may be interested in watching.

Review this case study in Chapter 7 of your text and conduct your own research. In a 3–4-page case study, address the following:
1. Discuss the background of the case. Who were the players? What prompted this leveraged buyout (LBO)?
2. What made this LBO feasible?
3. Discuss the terms and conditions of the LBO in terms of both pre-LBO and post-LBO corporate structure.
4. Discuss the financial qualities of the LBO in terms of the stock value pre- and post-LBO.
5. Why did this LBO fail? Or was it successful?
Where is RJR Nabisco today?
Abstract
This paper explores a Leveraged Buy-Out and a case study, the RJR Nabisco LBO. The article particularly examines the background of the RJR Nabisco LBO prior to the buyout as well as post LBO in terms of corporate structure. Gaughan (2011) suggesed “RJR Nabisco had not been performing well prior to the buyout” but post LBO analysis suggested that shareholder of RJR Nabisco benefited over Kohlberg Kravis & Roberts’ (KKR) bid winning contest (pg.298). The paper discusses financial qualities of the RJR Nabisco pre and post LBO, including what made RJR Nabisco successful. RJR Nabisco accelerated decline after LBO and due to the poor management of KKR. One option would have been to be bought out by another tobacco business and/or undergo another leveraged buyout.
Case Study: RJR Nabisco A leveraged buyout (LBO) is “a financial technique used by a variety of entities, including the management of a corporation or outside groups, such as other corporations, partnerships, individuals, or investment groups” (Gaughan, 2011, pg. 293). That is, LBO is the acquisition of another company where borrowed money is used to meet the cost of

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