RJR Nabisco, Inc., was an American conglomerate formed in 1985 by the merger of Nabisco Brands and R.J. Reynolds Tobacco Company. RJR Nabisco was purchased in 1988 by Kohlberg Kravis Roberts & Co. in the second largest leveraged buyout in history, adjusted for inflation. Adjusted for CPI growth, the $25 billion deal would be worth $42.8 billion in 2006 dollars. This is surpassed only by the 2007 buyout of TXU, an energy company, valued at $45 billion, also led by KKR.
In 1999, due to concerns about tobacco lawsuit liabilities, the tobacco business was spun off into a separate company, and RJR Nabisco was renamed Nabisco Holdings Corporation. Nabisco is currently owned by Kraft Foods
The RJR Nabisco leveraged buyout was, at the time, widely considered to be the pre-emininent example of corporate and executive greed. Bryan Burrough and John Helyar published Barbarians at the Gate: The Fall of RJR Nabisco, a successful book about the events which was later turned into a television movie for HBO.
The leveraged buyout
F. Ross Johnson was the President and CEO of RJR Nabisco at the time of the leveraged buyout and Henry Kravis was a general partner at Kohlberg Kravis Roberts & Co. The leveraged buyout was in the amount of $25 billion, and the battle for control took place between October and November 1988. Although KKR eventually took control of RJR Nabisco, RJR management and Shearson Lehman Hutton had originally announced that they would take RJR Nabisco private at $75 per share. A fierce series of negotiations and proposals ensued which involved nearly all of the major private equity players of the day, including Morgan Stanley, Goldman Sachs, Salomon Brothers, and Merrill Lynch. KKR quickly introduced a tender offer to obtain RJR Nabisco for $90 per share—a price that enabled it to proceed without the approval of RJR Nabisco's management. RJR's management team, working with Shearson Lehman Hutton and Salomon Brothers, submitted a bid of $112, a figure they felt certain would enable it to outflank any response by Kravis. KKR's final bid of $109, while a lower dollar figure, was ultimately accepted by the board of directors. KKR's offer was guaranteed, whereas management's lacked a "reset", meaning that the final share price might have been lower than their professed $112 per share. Additionally, many in RJR's board of directors had grown concerned at recent disclosures of Ross Johnson' unprecedented golden parachute deal. Time Magazine featured Ross Johnson on the cover of their December 1988 issue along with the headline, "A Game of Greed: This man could pocket $100 million from the largest corporate takeover in history. Has the buyout craze gone too far?".[1] KKR's offer was welcomed by the board, and, to some observers, it appeared that their elevation of the reset issue as a deal-breaker in KKR's favor was little more than an excuse to reject Ross Johnson's higher payout of $112 per share. F. Ross Johnson received $53 million from the buyout.
An article in Forbes at the time discussed leveraged buyouts.[2]
The European Union Lawsuit
More than a decade after Kohlberg Kravis Roberts & Co. took over RJR Nabisco, the European Union filed a lawsuit in US Federal District Court against RJR Nabisco alleging global money laundering by the corporation for various mafia and organized crime groups. For a description of the lawsuit, see Dillon, Read & Co. and the Aristocracy of Stock Profits, Chapter 3,[1] and copies of selected lawsuit filings listed under RJR Nabisco at the Article Resources - Organizations.[2]