Word: rjr
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Dates: during 1980-1989
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They need not have worried: the deals are back -- and bigger and bolder than ever. Last week top executives at RJR Nabisco stunned Wall Street by proposing what would be the biggest takeover in U.S. history: a $17.6 billion leveraged buyout by management of the tobacco and food conglomerate. (Among its top brands: Winston cigarettes, Oreo cookies, Ritz crackers and Life Savers candy.) The RJR executives, with the help of the Shearson Lehman Hutton investment firm, hope to borrow close to $16 billion to finance the deal. If the transaction is completed, it would eclipse Chevron's $13.3 billion acquisition...
...RJR Nabisco bombshell broke three days after Philip Morris offered $11.5 billion to buy Kraft. That merger, if consummated, would create the world's largest consumer-goods company: Philip Morris' Marlboro cigarettes, Maxwell House coffee and Miller beer would move into the same corporate basket as Kraft's Velveeta cheese, Parkay margarine and Breyers ice cream...
...Ross Johnson, the firm's chief executive, and Edward Horrigan, its vice chairman, an RJR Nabisco bid would take the firm private. The two men, who hold hefty chunks of RJR Nabisco stock, stand to make nearly $18 million each on the deal. While they will probably invest most of their profits in the new firm, that will do little to ease a projected $25 billion debt burden. To pay off the IOUs, RJR Nabisco will probably sell some of its divisions. The proposed deal must still be approved by a group of the firm's directors, but even...
Risks arise, though, when takeovers force a company to assume excessive debt. The proposed buyout of RJR Nabisco, for example, could load the company with enough debt to make it vulnerable to rising interest rates and a recession. Since Philip Morris will borrow about $9 billion to buy Kraft, its obligations too could become uncomfortable. The tobacco conglomerate is confident, however, that its cigarette business will generate enough cash to pay off its debts...
...they take effect, the Philip Morris and RJR Nabisco deals may prove to be textbook cases of smart corporate strategies. They could also turn out to be flops -- or so U.S. business history would suggest. In the 1960s some of America's most celebrated executives, including Harold Geneen at ITT and Charles Thornton at Litton Industries, acquired scores of companies and built huge conglomerates. Like many empires, they eventually declined. A similar fate may await some of today's dealmakers...