Who are the real winners and losers in RJR Nabisco takeover
Who are the real winners and losers in RJR Nabisco takeover In October of 1988 the company’s CEO, Ross Johnson, proposed a leveraged buyout (LBO) of the company for
$75 a share. His staff had estimated that the price may be as high as $90 a share. This started a bidding war in which Kohlberg, Kravis and Roberts (KKR) won the war by acquiring the company for $108 a share, or approximately $25 billion, which was the largest takeover in history.
Barbarians at the gate book captures this LBO with great details from all sides: from sophisticated players to a challenging valuation process. Most of us looks at LBO transactions from outside and have completely different viewpoint how these transactions are done. Barbarians at the Gate presents an insider's perspective.
We somehow have these believe that when there is billions of dollars involved in transactions, CEO’s, investors, investment bankers make their decisions based on numbers, trying to be objective to make rational decisions and very seldom let their subjectivity such as their ego to drive their decisions . However after reading the book, I realize how wrong we all are.
This paper focuses on what the management team did wrong that cause them to fail and who are the real winners from this transaction.
Why management team lost
When Ross Johnson proposed a levered buyout, he was sure he would win. He thought that RJR's directors would give him the deference due a chief executive, never realizing that the board would have no choice legally or morally but to treat him as an outsider. The following factors highlights why management team lost.
Remaining Equity: The board tried to keep the company as unbroken as possible to minimize the negative effect on employees. However the management team planned to keep only the tobacco business and sell the entire food business after the acquisition.
Employees’ benefits: Management focused only on employees who would stay and
$75 a share. His staff had estimated that the price may be as high as $90 a share. This started a bidding war in which Kohlberg, Kravis and Roberts (KKR) won the war by acquiring the company for $108 a share, or approximately $25 billion, which was the largest takeover in history.
Barbarians at the gate book captures this LBO with great details from all sides: from sophisticated players to a challenging valuation process. Most of us looks at LBO transactions from outside and have completely different viewpoint how these transactions are done. Barbarians at the Gate presents an insider's perspective.
We somehow have these believe that when there is billions of dollars involved in transactions, CEO’s, investors, investment bankers make their decisions based on numbers, trying to be objective to make rational decisions and very seldom let their subjectivity such as their ego to drive their decisions . However after reading the book, I realize how wrong we all are.
This paper focuses on what the management team did wrong that cause them to fail and who are the real winners from this transaction.
Why management team lost
When Ross Johnson proposed a levered buyout, he was sure he would win. He thought that RJR's directors would give him the deference due a chief executive, never realizing that the board would have no choice legally or morally but to treat him as an outsider. The following factors highlights why management team lost.
Remaining Equity: The board tried to keep the company as unbroken as possible to minimize the negative effect on employees. However the management team planned to keep only the tobacco business and sell the entire food business after the acquisition.
Employees’ benefits: Management focused only on employees who would stay and