RJR NABISCO CASE STUDY HBS

While many went along with the proposal, there were a number of holdouts, including Fidelity Investments, which turned a deaf ear to the personal pleas of Henry Kravis. In other words, conditions of oversupply and not necessarily poor fundamentals could have been causing the depressed prices of the reset bonds. Operating Projections Historically, RJR Nabisco’s tobacco operations provided just over half of the company’s sales and about three fourths of its profits. In the interest of restoring stability, the board’s special committee assessed each offer in terms of its effects on RJR’s identity and culture. Callable at par at any time. Mazur evaluated the acquisition using a financial model that assumed a sales growth rate of They have incorporated another condition to secure the rights of the share holders that the sale.

With just a few weeks until closing, the sellers asked to renegotiate the terms of the seller note that had been agreed to early in the acquisition process. Exhibit 1 summarizes this structure and describes the various securities issued by each of these entities. But the board had an alternative plan break up RJR on its own. The indentures of the Increasing Rate Notes and the Subordinated Debentures allowed considerably more leeway regarding the issuance of additional debt and the uses of cash. If the conversion occurs, the bondholders forego the right to the interest accrued on the debentures.

rjr nabisco case study hbs

In March,there were nbs product liability cases pending against RJR; compared to 97, 69, and 48 such cases at the end of, andrespectively. Business and Environment Business History Entrepreneurship.

RJR Nabisco is a.

RJR Nabisco Harvard Case Solution & Analysis

And this KKR accomplished with a professional staff of fewer than two dozen. While KKR did not promise such returns in the future, investors clearly hoped such would be the case. Food sales were forecast to grow at 8. Roberts, then 50, 32, and 33 years old, respectively. He identified ways to grow sales through changes in the composition and structure of the sales force and to improve margins through managing costs. Cite View Details Purchase Related.

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RJR Nabisco

The latter PIK bonds did not have a reset feature, however. All three had left Bear Stearns where they had been doing “bootstrap” as in hs yourself up by your bootstraps” financings, the name given to leveraged buyouts back then.

An often mentioned source of money was KKR’s LBO fund, which still had several billion dollars available for investments described more fully below. When they consider the old method of operation of the business then the value of the business. Failing such a reset, the bonds would become due and payable almost immediately.

The sellers asked for personal guarantees from the individual investors, something Medoff knew his investors would not agree to.

rjr nabisco case study hbs

Keeping its options open, KKR did not disclose its longer-term plans. Importantly, the banks’ reach extended upward to Group and Holdings. Alternatively, the management group proposed to let F.

They have also incorporated that whoever is bidding for the food segment should also tell the. The Fixed Rate will be equal to a rate determined by Holdings’ financial advisors, on the one hand, and Dillon and Lazard, on the other hand, designed to rir in the Debentures trading at par on a fully distributed basis, without giving effect to the conversion feature of the Debentures.

KKR had more or less free reign over how the funds could be invested. Same interest rate provisions as on the Senior Converting Debentures described above. The board defined its fiduciary duty broadly, considering not only shareholders’ interests, but also the welfare of its primary stakeholders die company’s employees and its communities. When the seller rejected this offer, Medoff was considering whether he should abandon the deal and either resume his search or switch to a more traditional employment path.

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RJR Nabisco – Case – Harvard Business School

In the spring ofthe bonds were selling at steep discounts to par Exhibit 3. Interest dase variable at the greater of 50 basis points over the IRN rate see above or an increasing spread over time over the rate on the 7 year treasury note.

rjr nabisco case study hbs

These are the good terms which they have incorporated into the auction so that the bidding. Upon election to extend maturity, interest rate must be reset to obtain a bid value ofbut must be in the range of Figures do not take into account capital gains taxes.

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Indentures required that on or before April 28,RJR reset the rate so that the bonds would trade at par see Exhibit 1. So, in they will be able to earn revenue. First rmr inbut can be extended each year for one year up to final maturity in KKR was attuned to the board’s goals and the impact on other stakeholders such as employees and communities.

In the spring ofRJR was in compliance with all such covenants and no violation of same appeared imminent. RJR Nabisco is valued at different work strategies and source of income by nabisfo emphasized.

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