> Misha, here's the NYT article on RJR's breakup, it's all greed and money,
> human misery is not part of the equation except as it stimulates
> litigation, which is more greed and money for lawyers.
> NYTimes: March 10, 1999
> End of a Disaster: Dismembering RJR Nabisco
> By FLOYD NORRIS
> It's over. A decade after RJR Nabisco was bought in the
> largest leveraged buyout in history, the company is being sliced into three
> pieces. It is a sad saga for almost all involved.
> "The story is what happens when you really overpay for a
> company, and the debt levels are just too high," said Stephen F. Goldstone,
> who will be the last person to hold the job of chairman and chief executive
> of RJR Nabisco.
> When all is finished, the only real winners will be those
> who cashed out in 1989 -- primarily the shareholders who sold and the
> investment bankers who arranged the buyout.
> The losers include R.J. Reynolds and Nabisco, which almost
> certainly would have been more vigorous competitors had they not been
> saddled with more than $25 billion in debt from the buyout. Kohlberg Kravis
> Roberts, the leveraged-buyout firm that engineered the deal, lost more in
> reputation than it made in money.
> Among the sufferers are investors who bought RJR Nabisco
> stock in 1991, when the company went public again, two years after Kohlberg
> Kravis took it private.
> A $100 investment then is now worth $51. Over the same
> period, the Dow Jones industrial average more than tripled.
> Kohlberg Kravis gave up in 1994, trading its RJR Nabisco
> stock for ownership of Borden Inc., the troubled food company. So far that
> looks like a doubtful investment at best.
> What went wrong at RJR Nabisco? The tobacco business proved
> not to be as good a cash cow as the buyers thought it would be. The great
> advantage of selling to addicted customers was reduced when price wars broke
> out among cigarette companies.
> Tobacco litigation proved to be a significant threat.
> Those problems hurt RJR Nabisco more than its competitors.
> Philip Morris, the largest tobacco company and the owner of Kraft Foods, has
> seen its share price about double since 1991, while RJR Nabisco's price has
> been cut in half. One difference was that Philip Morris had enough financial
> flexibility to invest in promoting its products, including Marlboro
> cigarettes and Maxwell House Coffee, while debt-ridden RJR Nabisco was
> forced to cut back on promotional spending for Winstons and Oreos. Over
> time, it hurt.
> Now RJR Nabisco will sell its international tobacco business
> for $8 billion to Japan Tobacco. That money, after taxes, will go to pay
> debt. Then the domestic tobacco business will be spun off into a separate
> company, with just $1 billion of debt. Shareholders of the current RJR
> Nabisco will get the shares in that operation.
> The remainder will be Nabisco, which will have two kinds of
> common stock. One type, the Nabisco Holdings shares that already trade, will
> have a stake in the profits from such products as Chips Ahoy and Ritz
> Crackers. The other will have a stake in the same profits. But as the former
> parent of the tobacco company, it will also be burdened with the possibility
> of residual liability if lawsuits manage to bankrupt the tobacco company.
> The discount between those two prices will show just how scared investors
> are of tobacco litigation.
> When all that is done, things will be almost back to where
> they were in 1985, before R.J. Reynolds acquired Nabisco. Nabisco will again
> be an independent company, albeit a weaker one than its predecessor. R.J.
> Reynolds will also be independent, with a smaller market share in this
> country and an international business that had to be sold to pay debt taken
> on in one of the most misguided deals in Wall Street history.
> In a more just world, the investment banks that made
> hundreds of millions from the RJR Nabisco buyout might now join in the
> suffering. Instead, they will collect more fees for their services in
> dismembering the hobbled company.
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