KKR Will Buy Borden in $2-Billion Deal : Mergers: It is the biggest acquisition by Kohlberg Kravis Roberts & Co. since it took over RJR Nabisco in 1989.


Cash-starved dairy and pasta company Borden Inc. agreed to be acquired by Kohlberg Kravis Roberts & Co. in a $2-billion deal that marks the biggest purchase by the leveraged-buyout firm since its takeover of RJR Nabisco Holdings Corp. in 1989.

KKR, based in New York, will pay for the acquisition with RJR Nabisco stock. For Columbus, Ohio-based Borden, which has been struggling with money-losing dairy operations and heavy debt, the price of $14.25 a share may be the best it could get, analysts said. As recently as December, the stock was trading above $18 a share. In 1991, it reached a high of $38.75.

By paying with RJR Nabisco stock, KKR will pare its once-controlling stake in the tobacco and consumer products firm to $2 billion, or less than a quarter of the voting shares. The RJR Nabisco acquisition--America’s biggest corporate takeover--capped the frenzied deal making of the 1980s and crowned KKR as the king of the leveraged buyout.


But RJR Nabisco has not performed well for KKR and its investors, so the Borden deal may provide an escape route from the tobacco industry. The industry has come under increasing pressure from internal price wars, municipal smoking bans and Congress, which sees cigarettes as a source of tax revenue to help finance federal health reform.

Under KKR’s complicated buyout proposal, Borden would become a private company headed by its current senior managers, including Chief Executive Ervin Shames, 54, a former executive of Kraft General Foods who came aboard last year, and Chairman Frank J. Tasco, 66.

Borden stockholders would get RJR Nabisco stock. At the completion of the deal, KKR would retain 80% of Borden, and RJR Nabisco would purchase the remaining 20%, paying with $500 million in newly issued stock. RJR Nabisco would also receive a warrant to purchase an additional 10% interest.

“It is clear that additional investment in our brands and in capital are needed in order to capture the company’s potential,” Tasco said in a statement.

Borden is perhaps best known for the Elsie the Cow logo that decorates its Eagle Brand condensed milk and other dairy products. Among its other brands are Prince spaghetti, Pennsylvania Dutch egg noodles, Wise potato chips, Cracker Jack, ReaLemon lemon juice and Cremora coffee creamer. The profitable non-food division includes Elmer’s glue, wallpaper and bonding materials for the construction industry.

Borden, which slashed its dividend by 75% last year and had been selling operations at cut rates to raise money, did not have enough free cash to market its products, said analyst Allan S. Roness of Fahnestock & Co.


“I don’t think they could have continued this way without sinking into a financial black hole,” Roness said.

Borden tried to put itself up for sale last year but received no bids. The company’s dairy operations have lost an estimated $30 million in the first half of this year, said analyst Nomi Ghez of Goldman Sachs. Without the cash to finance marketing and advertising, Borden’s brand recognition has been slipping, she said.

Analysts said the link to RJR Nabisco and its managerial acumen may help Borden improve its operations. RJR Nabisco will have 20% representation on Borden’s board and may purchase some Borden businesses later, RJR Nabisco said in a statement.

“With greater access to capital and an incentive compensation program that encourages managers to think like owners, Borden will be well positioned to develop the full value of its many strong underlying assets and excellent brands,” Henry Kravis and George Roberts, founding partners of KKR, said in a statement.

Borden stock jumped $2 to $13.625 in trading on the New York Stock Exchange. RJR Nabisco shares lost 37.5 cents, closing at $6.625.

KKR’s Holdings

Kohlberg Kravis Roberts & Co., which Monday agreed to buy dairy goods and pasta maker Borden Inc., was one of the kings of the 1980s leveraged-buyout boom, using small amounts of equity and large amounts of bank loans and junk bonds to acquire stakes in some of America’s best-known companies. KKR’s buying binge has slowed in recent years. Here is a look at some of the firm’s chief holdings:

1993 sales Company Industry Location (billions) Fred Meyer Inc. Retailing Portland, Ore. $3.0 AutoZone Inc. Auto parts Memphis, Tenn. 1.2 World Color Press Inc. Printing New York 0.9 Union Texas Petroleum Oil and gas Houston 0.7 Safeway Inc. Food retailing Oakland 15.2 Owens-Illinois Inc. Glass Toledo, Ohio 3.5 manufacturing Walter Industries Inc. Home building Tampa, Fla. 1.3 Idex Corp. Fluid handling Northbrook, Ill. 0.3 Stop & Shop Cos. Food retailing Braintree, Mass. 3.6 Duracell Inc. Battery Bethel, Conn. 1.7 manufacturing RJR Nabisco Inc. Cigarettes, food New York 15.1 K-III Communications Inc. Communications New York 0.8 Granum Holdings Radio New York 0.02 broadcasting KC Cable Associates Cable TV Liberty, N.Y. 0.03 American Re Corp. Reinsurance Princeton, N.J. 1.6 Flagstar Cos. Inc. Restaurant Spartanburg, S.C. 3.9 operator KSL Recreation Corp. Resorts, golf La Quinta, Calif. 0.1

Company Date Fred Meyer Inc. 1981 AutoZone Inc. 1984 World Color Press Inc. 1984 Union Texas Petroleum 1985 Safeway Inc. 1986 Owens-Illinois Inc. 1987 Walter Industries Inc. 1987 Idex Corp. 1988 Stop & Shop Cos. 1988 Duracell Inc. 1988 RJR Nabisco Inc. 1989 K-III Communications Inc. 1989 Granum Holdings 1991 KC Cable Associates 1992 American Re Corp. 1992 Flagstar Cos. Inc. 1992 KSL Recreation Corp. 1993

Source: Kohlberg Kravis Roberts & Co.