Rjr Nabisco

1028 WordsSep 17, 20085 Pages
RJR Nabisco Case Study 1. The RJR Nabisco Company passed trough some amazing facts of its financial life in the years of operating, starting as a tobacco company in 1875. In order to analyze RJR Nabisco company as a potentially candidate for leverage buyout (LBO) it is important to understand that all firms may be the targets of a leveraged buyout, but because of the importance of debt and the ability of the acquired firm to make regular loan payments after the completion of a leveraged buyout. Some features of potential target firms make for more attractive leverage buyout candidates. For one company to be said that is good candidate for LOB needs to include the following: low existing debt loads, a multi-year history of…show more content…
The unlevered cash flows are given by operating income – taxes plus depreciation. In Annex A we present the table with all the calculations used to obtain APV. The value of RJR Nabisco under each of the proposed operating plans is shown in Table 2.1. In the same table, we have also included the maximum value that each of the proposals would be willing to pay (in equity) for RJR Nabisco. These values are obtained subtracting the assumed $5,204 million debt from APV. Prebid M Group KKR APV 24445,34 20675,04 45353,14 Max Value 19241,34 15471,04 40149,14 Table 2.1 3. The lower APV is for the Management Group Bid, probably due to the fact that the Management Group pretends to sell off RJR Nabisco food business. The projections show that, in comparison to the other proposals, market did not react optimistically to this intention. The food business was formed during 1967, so it was a consolidated business of the firm with 20 years and with positive profits (exhibit 4 of the case). Although, the positive profits were much smaller that the profits of the tobacco business, selling off all food assets and taking the tobacco business private probably seemed to be a very risky operation. For the Prebid offer, APV value is greater than the Management bid. We know from the case that the major investment in the tobacco business was extending development and test marketing of the smokeless cigarette

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