Word: buyouts
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...whose price tag set a record with each new offer. Top RJR Nabisco executives, backed by Wall Street's Shearson Lehman Hutton and Salomon Brothers, raised their bid from $17.6 billion to $21 billion, topping the rival offer of $20.6 billion from Kohlberg Kravis Roberts, the high-flying leveraged-buyout firm. Now the two sides may be getting new competition. At week's end Forstmann Little, a Manhattan investment firm, said it might make an even higher bid for RJR Nabisco, backed by Procter & Gamble and other large corporate investors...
...mammoth deal is completed, it will intensify the debate about whether leveraged buyouts are good or bad for American business. Proponents point out that the stock market has severely undervalued many companies. Thus the only way shareholders can get fair value for their investment is through a buyout. Another argument in favor of the trend is that by breaking up conglomerates, buyout specialists create more efficiently run businesses...
...more immediate danger is the debt being loaded on corporate America. This summer Revco, a chain of 2,000 drugstores based in Twinsburg, Ohio, defaulted on $700 million worth of bonds and went into bankruptcy proceedings just 19 months after going private in a leveraged buyout. Some experts fear that Revco will be one of many major failures resulting from the buyout binge. In the first half of this year, Standard & Poor's lowered the investment ratings for $216 billion worth of corporate securities, while raising the standing of only $130 billion in such debt. Warns economist Henry Kaufman...
...billion bid for RJR Nabisco, is any company safe from the buyout binge...
Leveraged buyouts come in many different varieties. In some cases, corporate raiders snap up a company with borrowed money, then throw out the management, dismember the firm and sell off the pieces. But in other deals, including the proposed buyout of RJR Nabisco, the managers initiate the action. In one of the least controversial types of management buyouts, the executives of a particular division buy it from a larger parent company. These managers are out to prove they can run their own show -- and run it better than some sprawling conglomerate that has grown inattentive or slothlike in responding...