Case Study Of Henry Kravis
They made many of high successful investments. The firm completed becoming leveraged buyout of RJR Nabisco after Jerry Kohlberg left the firm KKR. After that, Henry Kravis started to have a conflict with Ross Johnson who was a CEO of Nabisco. Then, Henry Kravis loss his teenage son and became bankruptcy. However, he continued to reinforce himself to increase the profits as a successful financial businessman. He was an effective dealmaker in the financial file that made billion dollars. He is considered as an icon in the financial world for defining the private equity industry.
2. The RJR Nabisco was a good LBO candidate because of the high growth and inconsistent growth. The RJR Nabisco is a world’s famous LBO which is about $25 billion takeover and remains as the largest LBO ever. The leveraged buyout is a group of upper level managers, investors, and financial specialists buy back stock from a corporation’s shareholders at a price above market value and a huge amount of debt. With the strategy of large acquisitions, it doesn’t …show more content…
From the article “RJR Nabisco: A Case Study of a Complex Leveraged Buyout”, it illustrated the RJR transaction through the RJRs’ history, examination and valuation of the company, and relating the role of the board in the winning bid. RJRs had tobacco and food operation. Regarding the food operation, it operated the food with cheap brands. Regarding the tobacco operation, it was hurt from the health concerning. The risks associated with LBO in RJR deal with high growth and inconsistent growth. It is needed to have a large investment of the working capital. Also, it deals with a low beta of 0.69 which was a very high risk for the firm. The growth rate of the food operations was a lot lower compare to tobacco. The RJR firm had low capital expenditures and low debt level. However, the firm could save a lot of money on the high technology that needed to have a large R&D commitment to remain competitive. Also, the firm had a low debt level that was an opportunity for management to looks for low debt in the target firm. There were some studies about the LBO target firm, which often exhibit higher debt levels when their non-target. The high debt over equity ratio caused the bonds issued to support the acquisitions as a junk bonds. The interest payments were very large with this high leverage ratios that the firm’s cash flows were not able to pay the debt. The interest rates usually low when the LBO activity increase which is more competition for deals and tends to increase the