3 Offers Raise Ante in Battle for RJR Nabisco
The ante in the biggest takeover battle in corporate history leaped higher Sunday as RJR Nabisco Inc. disclosed that two bidders for the giant food and tobacco firm had sweetened their offers and that a third had dealt itself into the fray.
All three bids are worth significantly more than $20 billion.
Top management of the Atlanta-based company--maker of Winston, Salem and Camel cigarettes, Oreo cookies, Ritz crackers, A-1 steak sauce and a vast array of other popular products--raised its bid to $22.53 billion, or $100 a share, up from its most recent offer of $92 and a full one-third more than its initial bid of $75 a share.
Panel Studies Offers
The figures came from a statement released late Sunday by a special committee of the RJR board of directors that is studying the offers and refereeing the competition.
Kohlberg Kravis Roberts & Co., a New York firm that specializes in putting together leveraged buyout bids for companies, is now offering to buy RJR Nabisco for $21.2 billion, or $94 a share, up from the $90 a share it had offered earlier for the nation’s 19th-largest company.
Newly entered in the high-stakes contest is a team led by First Boston Corp., an investment bank, and including the Pritzker family of Chicago, which controls Hyatt Corp., and Philip Anschutz of Denver, chairman of Rio Grande Industries.
In its preliminary proposal, rumors of which abounded Friday on Wall Street, First Boston declared that it wants only RJR Nabisco’s tobacco business and would sell the firm’s food businesses, which include not only Nabisco brand items, but also Del Monte products. The bid would be worth between an estimated $105 to $118 a share to holders of RJR Nabisco common stock. Total value of the complicated proposal was set at between $23.66 billion and $26.59 billion.
RJR stock closed at $84 a share Friday on the New York Stock Exchange, where it was the most heavily traded issue.
Analysts still were trying to figure out late Sunday just what the new offers--each of which consists of a package of cash and securities--would mean to shareholders. The details of the First Boston proposal, which calls for the sale of RJR Nabisco food business on an installment basis that might slow the pay-out to investors, were particularly vexing.
Value Has Escalated
One thing was clear: The value that the bidders place on RJR has escalated since the firm’s management threw the company into play with its startling buyout offer a month ago.
“We haven’t gone beyond what the company is worth,” said Ronald B. Morrow, an analyst with Smith Barney Harris Upham & Co. in New York. “We’ve gone beyond what the bids were before. We’re getting closer to fair value.”
RJR’s special board committee, leaving wide open the possibility that the stakes could be driven still higher, extended until Nov. 29 the deadline for receiving bids. Previously, the committee had cut off bids Friday afternoon. It spent Saturday and Sunday in an intensive study of the three offers.
Morrow said there was talk on Wall Street last week that another bidder could come forward, even though one group--an investment team including Procter & Gamble Co. and Ralston Purina Co.--withdrew from the fracas in midweek.
Kohlberg Kravis Roberts, the New York firm that has engineered many other mammoth corporate buyouts, said Sunday that it will “carefully consider our alternatives” in the wake of the new round of offers.
No Recommendations to Board
During a lengthy meeting Sunday in New York, the committee made no recommendations to RJR’s full board about any of the existing bids because of “the varying terms, conditions and contingencies associated with each,” said the statement by Charles E. Hugel, chairman of the panel and president and chief executive of Combustion Engineering Inc.
Hugel said the RJR committee had instructed the firm’s investment bankers Sunday “to continue to explore all forms of restructuring,” which might provide an alternative to the buyout offers.
The unprecedented scale of the contest for RJR--a battle of leveraged buyout offers that would depend on selling off large chunks of the company to reduce the debt associated with the purchase--has unleashed a new round of criticism of corporate high finance.
Economists have denounced the auctioning off of the firm as an example of “Tinkertoy capitalism,” the unproductive shifting about of corporate assets. Some RJR bondholders, whose securities have dropped in value by nearly $1 billion over concern about the massive debt any successful bidder would take on, have filed lawsuits charging that the buyout of the company would enrich a few executives at the bondholders’ expense.
Details of Offers
The $100-a-share offer by top RJR managers, teamed with the New York investment firms of Shearson Lehman Hutton Inc. and Salomon Bros. Inc., includes $90 in cash, $6 of preferred stock and $4 in other securities.
The $94-per-share offer by Kohlberg Kravis Roberts includes $75 in cash, $11 in preferred stock and $8 in a debt security.
The preliminary offer by First Boston consists of $98 to $110 a share in cash or cash equivalents, securities valued by First Boston at $5 and warrants valued by the investment bank at $2 to $3.
Hugel noted that the First Boston proposal could not be made formal until the bidder has an opportunity to review confidential information about RJR’s finances.
