KKR Goes After Shareholders to Pressure Nabisco : Despite Cold Shoulder From Management, It Describes Bid as Friendly
After getting the brushoff from RJR Nabisco Inc., a rich New York investment firm Thursday moved forward with plans to wrest control of the food and tobacco giant for $20.3 billion.
The Kohlberg Kravis Roberts investment group said it would mail copies of its $90-a-share offer to RJR Nabisco’s shareholders within a few days in light of the breakdown of its talks with RJR Nabisco’s management earlier this week.
With the RJR Nabisco rebuke of Kohlberg Kravis, the company’s stock price fell $2.50 to close at $82.25. The stock was the second-most actively traded on the New York Stock Exchange, with 6.9 million shares changing hands.
The Kohlberg group has taken pains to describe its unsought overtures as friendly, but Thursday’s decision was viewed as a clear attempt by the outside investors to pressure RJR Nabisco to give them a major role in any restructuring of the food company.
“At some point, the only thing that’s going to be standing between shareholders and their money is an agreement from the (RJR Nabisco) board,” said Thomas M. Daley, a spokesman for the investment firm.
The titanic financial duel for control of RJR Nabisco began last week when top managers of the Atlanta-based company announced plans to take it over for $17 billion. That surprise move, made in partnership with Shearson Lehman Hutton, was answered by the $20.3-billion bid from Kohlberg Kravis Roberts, eager to protect its reputation as Wall Street’s biggest buyout firm.
The contest for control over RJR Nabisco has attained symbolic meaning on Wall Street, with rivals competing for the status of winning what has become potentially the most expensive buyout battle in history. At the same time, the prospect of a buyout has ignited renewed national debate over the rising debt of corporate America and the potential social cost when a company is broken up and workers are laid off.
In each case, details of the financing remain vague, although analysts say the company that ultimately emerges is likely to be heavily saddled with debt, forcing its owners to sell off key divisions.
‘Different Animal’
One investment professional interviewed Thursday said that owners of RJR Nabisco--which is noted for popular food brands such as Oreo cookies, Ritz crackers and Planters nuts and cigarette labels such as Winston, Salem and Camel--could easily sell off parts of the big firm to reduce their debt. “Within three months you’d find that the new RJR Nabisco was such a different animal that the debt load wouldn’t be so bad,” he said.
In their attempt to fend off the Kohlberg group, RJR Nabisco’s managers Thursday hired the Salomon Bros. investment firm as a financial partner. “The combination of Salomon Bros. and Shearson Lehman Hutton forms a team with extraordinary capital strength and capabilities,” said F. Ross Johnson, RJR Nabisco’s chief executive.
Other potential financial partners for the RJR Nabisco managers have reportedly included Forstmann, Little & Co., American Express, which owns Shearson Lehman, and the Nippon Life Insurance Co. of Osaka, another big investor in Shearson Lehman.
Kohlberg is using the investment firms of Morgan Stanley, Wasserstein Perella, Drexel Burnham Lambert and Merrill Lynch Capital Markets to help structure and finance the transaction.
Asked if the Kohlberg group would seek more investment partners, Daley said an alliance was not necessary. “We don’t need them. The other side needs them,” he said. “We’ve got the clout, the capital and the relationships with the banks to complete this.”
