Word: buyouts
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Dates: during 1980-1989
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...also become a cash machine with many ways of making money. To begin with, KKR charges investors in its buyout funds annual management fees amounting to 1.5% of their investments. Companies taken private by KKR pay the firm 1% to 2% of the purchase price for handling the transaction. But the really big money rolls in when KKR starts to sell off divisions of the companies it acquires. So far, KKR has taken in $7 billion by unloading parts of Beatrice. In recent years the investors in KKR's buyout funds have earned annual returns of about 30%. Says James...
Maybe, but the RJR Nabisco deal will put that assertion to a stern test. The struggle for the huge company began two weeks ago, when it was announced that a group of managers led by chief executive Ross Johnson, 56, was considering making a $17.6 billion buyout bid, to be put together by Shearson -- not KKR. The announcement came after Johnson delivered a startling message to the RJR Nabisco board of directors: "This company ought to be in play." News of the buyout proposal stunned Henry Kravis, who felt betrayed by Shearson's chairman, Peter Cohen. For one thing, Kravis...
Determined not to let the RJR Nabisco deal get away, Kravis demanded that Cohen come by KKR's Manhattan offices. Chewing out Cohen in front of Shearson aides, Kravis demanded a major role in the buyout, sputtering, "This is my franchise!" Cohen walked out, suggesting they talk again in a few days. But before that talk took place, Kravis delivered a thumping counterpunch: a $20.6 billion buyout bid for RJR Nabisco...
...were out in the open, the two sides began to think about working together. On Tuesday, Oct. 25, Kravis and Cohen made their peace over breakfast at the Plaza Hotel. In a two-day series of round-the-clock meetings that followed, the KKR and Shearson/RJR teams discussed alternative buyout plans. George Roberts, who normally works out of KKR's offices in San Francisco, and Robinson of American Express joined Kravis, Cohen and Johnson in the negotiations...
Early on, KKR reportedly offered Shearson a $125 million "kill fee" to step aside. Cohen brushed off the idea as "personally insulting." Once serious talks began, the participants saw they had different strategies in mind. KKR preferred to sell the tobacco business to pay back the buyout loans and retain the food businesses, a good fit with the Safeway chain. Johnson's team wanted to keep the tobacco company and sell off Nabisco, Del Monte and the other non-tobacco parts of the business. Positions hardened shortly after , midnight Tuesday, when KKR partner Roberts made what may prove...