Word: tobacco
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Dates: during 1980-1989
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...stunning rebuff to Johnson, the board awarded the food-and-tobacco giant to Kohlberg Kravis Roberts, the leveraged-buyout specialists. Underdog KKR won even though the firm's final bid of about $25 billion in cash and securities, or $109 a share, was a bit less than the $25.4 billion, or $112 a share, that Johnson and his handful of top RJR managers had offered as their last stab. (The largest previous deal was Chevron's $13.3 billion takeover of Gulf in 1984.) "It was destined to happen this way," said a source close to the bidding. "The board could...
...only three years ago as a brilliant strategic move. "What is being done threatens the very basis of our capitalist system," said John Creedon, president of Metropolitan Life Insurance company, which is suing RJR because the potential buyout has undermined the value of all bonds that the food and tobacco company sold before the announcement. Not everyone was alarmed. Said Harry D'Angelo, a finance professor at the University of Michigan: "I don't see any major social dangers. The real challenges have been to the conventional wisdom that large numbers of shareholders provided the best means of financing industry...
LBOs do have some strong defenders, and not just among the executives who grow rich from them. Some financiers and economists argue that increased leverage can be a benefit to companies, especially those in mature industries like tobacco. Reason: these businesses produce a lot of cash but call for relatively little research or development. For them, one efficient way to distribute profits to shareholders is simply by buying up stock...
...Kohlberg Kravis Roberts, the Manhattan socialite, 44, countered Johnson's proposal by offering to pay as much as $21.6 billion for the Atlanta-based company. As RJR's new owner, Kravis, whose firm also controls Beatrice and Safeway Stores, would probably keep the food divisions and sell the tobacco business...
...warrants, which is still only a hazy proposal rather than a firm bid. The sheer size of First Boston's bid persuaded RJR's board to give the group until Nov. 29 to make the offer more concrete. If successful, the high-rolling group would probably keep RJR's tobacco business and sell its food groups to such consumer-product companies as Ralston Purina and Procter & Gamble...