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Kohlberg Kravis Offers $90 a Share for RJR Nabisco

October 24, 1988

NEW YORK (AP) _ The stampede of bids for food companies intensified today as the investment firm Kohlberg Kravis Roberts & Co. announced it would begin a $20.28 billion tender offer for RJR Nabisco Inc.

The Kohlberg Kravis announcement came four days after managers of the food and tobacco products company said they were considering taking the manufacturer private for nearly $17 billion.

″Management has decided that the company should be sold. Our offer is a better one,″ Henry Kravis, a partner in the New York-based leveraged buyout specialist firm, said in a statement.

The Kohlberg Kravis offer was for $90 a share in cash and securities, compared with the management buyout proposal of $75 a share in cash.

Polly Howes, a spokeswoman for RJR Nabisco, said the company had no comment on the offer.

However, investors reacted enthusiastically to news of the Kohlberg Kravis bid. RJR Nabisco stock shot up $10.37 1/2 a share to $87.12 in early New York Stock Exchange trading today.

Kohlberg Kravis had been expected to enter the whirlwind of bids for food companies that began Oct. 4 with a $5.23 billion bid for Pillsbury Co. by Grand Metropolitan PLC, a British company.

Kravis said his company had raised an equity pool of $5.6 billion for leveraged buyouts. In a leveraged buyout, investors borrow heavily to purchase a company and then pay off the debt with the target company’s cash flow or the sale of its assets.

Securities analysts said last week the plan by RJR Nabisco management was a pre-emptive strike to protect the company that manufactures many well-known brand names, including Winston and Camel cigarettes and Oreo cookies, from an unwanted suitor.

RJR Nabisco President F. Ross Johnson and other executives made their announcement after Philip Morris Cos. Inc. offered more than $11 billion for Kraft Inc., the processed foods manufacturer.

Kohlberg Kravis had been thought to be considering a bid for Kraft, which late Sunday rejected the Philip Morris bid and announced a $13.59 billion recapitalization plan.

Kohlberg Kravis carried out the largest leveraged buyout in U.S. history in 1986 when it took the food and consumer products conglomerate Beatrice Cos. private for $6.1 billion.

The investment firm is also leading a group that is attempting to acquire the publishing giant Macmillan Inc. for $2.5 billion. British publisher Robert Maxwell, who also seeks to buy Macmillan, is fighting that bid in a Delaware court.

Kohlberg Kravis recently withdrew a $5.03 billion bid for the supermarket operator Kroger Co. after Kroger rejected the offer and said it would proceed with a financial restructuring.

In its statement today, Kohlberg Kravis said its offer for RJR Nabisco was conditioned upon approval of RJR Nabisco’s board. The investment firm said it would begin its tender offer later this week, but did not specify exactly when it would begin.

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