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RJR-Nabisco_LBO_Case_521_2011

RJR-Nabisco_LBO_Case_521_2011 - Leveraged Buy-Outs(LBOs...

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1 Leveraged Buy-Outs (LBOs) RJR-Nabisco
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2 What is an LBO? A large fraction of the purchase price is debt- financed (thus “leveraged”) The LBO firm goes private, and its shares no longer trade on the open market The LBOs stock is held by a partnership When partnership consists primarily of management of the firm, it is known as a management buyout (MBO)
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3 RJR-Nabisco RJR started in 1875 as a tobacco company Winston, Salem, Camel & Vantage Also had large food division Hawaiian Punch, Del Monte, Planters, Life Savers In 1985, RJR acquired Nabisco Oreos, Fig Newtons, Ritz Crackers
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4 What is RJR’s “Problem”? Stagnant stock price Management believes that the market is undervaluing the strong cash flow from the tobacco business Also believe that the market is undervaluing food operations because of association with tobacco
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5 Barbarians at the Gate Key Players RJR Nabisco Management F. Ross Johnson, CEO {James Garner} Ed Horrigan, Head of RJR division John Greeniaus, Head of Nabisco division Charles Hugel, Chairman of the Board
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