Word: rjr
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Amid the brawl for his company, Johnson has remained aloof from most outsiders and workers at RJR Nabisco headquarters in the elegant Galleria complex north of Atlanta. "We don't know what is going on," says an employee. "Some of us are going to lose our jobs, but we don't know who, or where." Feelings of helplessness were hardly confined to the South. Said a 15-year employee at an RJR Nabisco cookie plant in Fair Lawn, N.J.: "When you're at the bottom of the ladder and you got money men at the top, you take...
Whoever wins the grab for RJR, a highly leveraged takeover could add more debt to the U.S. economy than any previous business deal. All told, corporate debt has climbed from some $965 billion in 1982 to $1.8 trillion this year, a rise from 32% to 37% of U.S. gross national product. LBOs can be especially worrisome of borrowing, because they replace virtually all of a company's equity with IOUs that must be repaid. A sudden downturn can thus put a firm heavily in hock out of business. "High leverage is unsafe, not just for a company...
While that may be true, even the U.S. tax code is a strong ally of LBO artists. Since the interest on junk bonds and bank loans is tax deductible, companies like RJR Nabisco can borrow at Government expense. Some -- but not all -- of the Treasury's loss can be recouped from capital-gains taxes on the profits of shareholders who sell their stock...
...particularly investors who owned a company's top-quality bonds when the same firm's junk bonds hit the market. Since the new IOUs would saddle the company with a riskier load of debt, the old bonds get clobbered. No sooner had Johnson disclosed that he wanted to buy RJR Nabisco, for example, than the company's $5 billion of outstanding bonds lost 20% of their value. Furious bondholders, including Metropolitan Life and ITT, immediately sued for damages. Declared Metropolitan Life chairman Creedon: "No one in his right mind wants to invest in corporate bonds anymore." In fact...
...less than executives make when they break up a company and then put it back on the market. LBO critics argue that managers who fatten their wallets in this way are really profiting at the expense of other stockholders. So far, shareholders have brought eleven class-action suits against RJR Nabisco charging executives with acts ranging from "unfair self-dealing" to "not acting in the best interests of the stockholders...