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26 May 12
JPMorgan blues: The
Hunch, the Pounce and the Kill,
NYT, AZAM AHMED
20 May 12 Heist of the century: Wall Street's role in the financial crisis, Guardian, Charles Ferguson
28 Jul 08 After Delay, KKR Finds a Way to Go Public, NYT, ANDREW ROSS SORKIN
7 Mar 93 A Good Deal For K.K.R., But Will It Sell?, NYT, FLOYD NORRIS
21 Jun 90 Refinancing Plan Sought For Nabisco, NYT, ANISE C. WALLACE
15 Jun 90 Is Kravis Playing A Waiting Game?, NYT, ANISE C. WALLACE
20 May 90 RJR Nabisco's Disgruntled Bondholders, NYT, LESLIE WAYNE
17 Sep 89 RJR's Brave New World, NYT, CLAUDIA H. DEUTSCH
7 Jul 89 RJR Nabisco Will Maintain Guarantees on Swiss Bonds, NYT, Reuters
29 Apr 89 Kohlberg, Kravis Now RJR's Owner, NYT, AP
13 Apr 89 Swiss Judge Lifts Order on RJR Deal, NYT, AP
13.Apr 89 Der Schutz der Obligationäre der RJR-Nabisco-Anleihe, NZZ
12.Apri 89 Basler Nabisco-Klage den «Boden entzogen», Basler Zeitung, Erich Reyhl
12.Apr 89 Verfügungen gegen RJR Nabisco in der Schweiz aufgehoben, NZZ
9.Apr 89 Schweizer Investorenschutz-Vereinigung erwirkt Fusions-Stop, NZZ, ace
8.Apr 89 Amerikanischer Richter schützt Basler Nabisco-Urteil, Basler Zeitung, Erich Reyhl
8 Apr 89 US Judge Orders Nabisco Halt, Enforcing Fusion Veto by Swiss Judge, NYT, AP
17 Feb 89 $25 billion RJR Nabisco LBO cleared by US judge, NYT, Kurt Eichenwald
Memo an den damaligen Rechtskonsulenten
des Schweiz. Bankvereins
Prägen RJR Nabisco-Mechanismen die Finanzplatz-Zukunft?
Lieber Herr Dietzi,
Eigentlich dürfte es Sie nicht überrascht haben, dass ich mich erneut an Sie wandte - auch andere Kaliber, wie Luqman Arnold, hatten und haben ihre Gründe, um sich in besonders struben Zeiten gerade nicht an die Hierarchie zu halten. Und wer die Chance hat, mit Blick auf vivant sequentes Inventar zu machen und aufzuräumen, sieht sich ohnehin nicht gehalten, Aufgaben in vermeintlichen Grenzen anzugehen und Stumpen- oder ausgeleierte Geleise zu befahren.
Wie erinnerlich fand in den 80er Jahren ein nachhaltiger und immer verheerender wirkender Paradigmawechsel im Bankenwesen statt. D.h. die bis dahin vorrangigen Schutz-, Treuhands- und Dienstbarkeits-Funktionen gegenüber den privaten und kommerziellen Kunden wichen zusends den Erfordernissen der Superdeals, welche als effizienz-steigernd hochgejubelt worden sind, sich allzuoft aber dadurch auszeichneten, dass sie gesunde Produktionssubstanz vernichteten, und nur immer obszönere Kommissionen, Managerlöhne und Boni abwarfen. Beispielhaft dafür waren die rücksichtslosen Raubzüge der hiesigen und ausländischen "shareholder"-Apologeten KKR und ihrer lokalen Zudiener. Die bis dahin weltweit grösste, mit "junk bonds" finanzierte LBO-Fusion war der $25 Milliarden-schwere RJR/Nabisco-Deal, welcher eine hierzulande vom Bankverein platzierte CHF200 Mio Obligation gefährdete. Entweder war wesentlich das gesamte Bankverein-Management am Steuer eingenickt. Oder aber gewisse SBVler verniedlichten diese Gefährdung der eigenen Obligationäre unter Verletzung ihrer vorrangigen Treuhandpflichten - geblendet durch die lockenden Fusions-Kommissionen und Risikosuperprämien. Auf diesem Hintergrund, und in dem von Ihnen angesprochenen Sinne der übergreifenden Interessen nicht nur des Bankvereins sondern des Finanzplatzes Schweiz insgesamt, sahen Sie sich trotz starkem Gegenwind veranlasst, die damaligen Grünschnäbel, Zauberlehrlinge und SBV-Heckenschützen verdienstvollerweise zu neutralisieren. Denn damit gelang es uns - d.h. meinen langjährigen Waffenkameraden und Mitstreitern unter den hiesigen Banquiers, Gewerblern & Industriellen und mir - jene aufsehen-erregende Lebensfett-Absaugung durch die KKR-Heuschrecken mittels gerichtlichen Fusionsverboten in Basel und Atlanta wenigstens soweit und solange zu blockieren, als die Schweizer Nabisco-Oblgationäre nicht vollumfänglich und bevorzugt abgesichert waren. Diese Anektote findet zwar keine Erwähnung in dem einschlägigen Buch "Barbarians at the Gate". Und der in ihrem Interesse erfolgte diskrete aber durchschlagend erfolgreiche Sonderaufwand ist den meisten Betroffenen auch gar nicht ins Bewusstsein gedrungen - in echt schweizerischer Bankentradition. Aber für derzeitige und künftige Dietzis scheint es dennoch hilfreich zu sein, jene Umstände anerkennend in Erinnerung zu rufen - auch und besonders gegenüber den nachkommenden Kräften, welche mit der Aufräumung und Vermeidung weiterer Scherbenhaufen betraut sind.
Jedenfalls besten Dank für Ihre - im Gegensatz zu gewissen UBS-Verantwortlichen - wohlwollende Prüfung meiner Anregung, die FINMAG-Vorlage im Lichte der neueren und neuesten Erkenntniss nochmals auf ihre Zweckmässigkeit und Genügsamkeit zu überprüfen (www.solami.com/FINMAG.htm) - sine ire et studio, etwa im Sinne der Erwägungen von Jean-Claude Péclet: "Alors que la Suisse met en place une autorité intégrée des marchés financiers, il est grand temps de se demander si celle-ci a les ambitions intellectuelles et le cahier des charges d’un gendarme de province, ou si elle veut contribuer par une action proactive à ce que la population soit moins otage des «risques systémiques»." (Le "risque systémique", c'est si pratique", Le Temps, 31.3.08; siehe auch: .../capitalism.htm). Auch habe ich volles Verständnis für Ihre derzeitige Zurückhaltung. Kommt dazu, dass bekanntlich "der Mist schon gefahren ist", d.h. die Novelle vom Parlament bereits verabschiedet ist und am 1.1.09 in Kraft treten soll. Dennoch, mit Luther bin ich geneigt zu sagen, "hier steh' ich, ich kann nicht anders."
privaten Temperaturmessungen unter sachverständigen Parlamentariern
haben denn auch im ganzen politischen Spektrum eine überraschend ermutigende
Bereitschaft zutage gefördert, das allseits als mangelhaft empfundene
Paket gegebenenfalls nochmals aufzuschnüren und entsprechend den neuesten
Erkenntnissen nachzubessern (siehe auch WAK
N-Pressemeldung vom 15.4.08, welche im Sinne der auch
von linker Seite angestrebten Nachbesserung noch vor der geplanten
FINMAG-Inkraftsetzung am 1.1.09 bereits von "gesetzgeberischem
Handlungsbedarf" spricht). Dies insbesondere bezüglich
- des Zweckartikels (Erfassung und Bekämpfung der System-Risiken, Ursachenerforschung, etc.),
- des privatrechtlichen Beizugs der weltweit fähigsten Sachverständigen,
- der unverhältnismässigen und selbst-schädigenden Belastung dieses vorrangigen Aufsichtsgremiums mit der sachfremden und bedenklich medien-trächtigen Überwachung der Massnahmen zur Bekämpfung der Geldwäscherei (siehe dazu meine Ausführungen an die Mitglieder der Eidg. Räte: .../aufsicht.htm#ablenken),
- der Überprüfung einschlägiger nationaler und internationaler Leitplanken für Banquiers, Finanzfachleute und Pensionskassen-Manager (Pensionskassengesetz: .../aufsicht.htm#Noven, resp. FATF/GAFI: .../diamantball.htm), und
- der wirksamen Unterbindung "willfähriger" (PUK-Zitat!) Rechtshilfe in Strafsachen, insb. gegenüber USA, sowie der Gewährleistung der Verfassungsmässigkeit der Zusammenarbeit schweizerischer Amtsstellen mit ausländischen Behörden im Finanz- und Fiskalbereich (.../schubarth.htm), z.B. mittels Reaktivierung der Beratenden Kommission welche zum Schutz schweizerischer Interessen und Souveränitätsrechte im CH/US-Rechtshilfeabkommen von 1973 ausdrücklich festgeschrieben ist (.../rechtshilfe.htm | .../rechtsbeihilfe.htm | .../CH-USA.htm | .../RUSSIA.htm#option).
einige weiterleitende grundsätzliche Fragen, Erwägungen und Anregungen
verweise ich auf mein Schreiben an interessierte Mitglieder der Eidg. Räte
vom 4.April 2008:
Unsere FINMAG-Verbesserungsvorschläge "sind entstanden auf dem Hintergrund einer langjährigen Beobachtung unserer sehr speziellen Rechtshilfebeziehungen mit den USA (.../rechtsbeihilfe.htm) und in Zusammenarbeit mit bestausgewiesenen und in erster Linie auf unsere Landesinteressen bedachten Sachkenner und Gutachter (.../schubarth.htm). Sie sind dann zwar erfolgreich aber weder sachdienlich noch sonstwie gerechtfertigt hintertrieben worden. Und zwar von damaligen Bannerträgern und ihren Befehlsempfängern in der Bankiervereinigung.
Ich denke dabei nicht nur an den mittlerweile zum Imperativ gewordenen Vorschlag einer pro-aktiven, ja prophilaktischen Erfassung und Ausräumung von bestehenden und neuartigen Systemrisiken. Einige der schon im Rahmen meiner Kritik an der Fusion SBV-SBG vorgetragenen Erkenntnisse über grundsätzliche Fehlentwicklungen im Finanzsektor (.../ubs.htm#Titanic) könnten sich bei der Bewältigung der auf uns zukommenden Probleme als besonders hilfreich erweisen. Die damit angeregte Neuprüfung der Anlagekriterien, Produktansprüche und Managerrichtlinien für Pensionskassengelder könnte u.U. auch auf einem Parallelgleis erfolgen (hier geht es um die in den 80er Jahren zuwenig bedachten Schweizer Noven - .../ubs.htm#effets - welche weltweit übernommen worden sind, scheinbar wesentlich zum derzeitigen Finanzmarkt-Debakel beigetragen haben, und sich damit für einschlägige Schweizer Korrekturimpulse erfolgversprechend anbieten). Zu denken ist auch an die überfällige Reaktivierung der im US/CH-Rechtshilfeabkommen von 1973 ausdrücklich verankerten Beratenden Kommission zum Schutz schweizerischer Interessen und Souveränitätsrechte vor allzu eilfertiger Rechtshilfe unsererseits (.../oehenkopp.htm), sowie gegen missbräuchliche Beanspruchung der Rechtshilfeinstrumente durch amerikanische Dienststellen (.../walderbsi.htm).
Und zugunsten der realen Inlandwirtschaft gilt es natürlich auch die neue Finanzmarktaufsichtsbehörde nicht von ihrer Kernaufgabe abzulenken, schon gar nicht durch systemwidrige und zudem gesellschaftlich, politisch und wirtschhaftlich bedenkliche Polizeifunktionen à la amerikanische Prohibition und Goldbesitzverbot (z.B. durch Anti-Geldwäscherei-Aktivismus hinter dem sich erfahrungsgemäss wesentlich fremddiktierte und in erster Linie fremden Herren dienende Anti-Drogen-, Anti-Terror- und neutralitätswidrige Sanktionen-Politiken verstecken lassen). Dies wäre umso weniger akzeptierbar, als die 31% QI-Regelung [.../QI.htm | .../stammsbv.htm] die amerikanische Steuerbehörde zur weltgrössten Geldwaschmaschine gemacht hat, das US Treasury sich dazu auf ein Netz von weltweit über 2600 vertraglich gebundene Bankinstitute stützen kann, und als auf diesem Weg, nach übereinstimmenden Expertenschätzungen, von den jährlich global anfallenden $1000-2500 mindestens $500 Mia "Schwarzgeld" der "weissen" Wirtschaft zurückgeführt werden sollen - z.B. via hedge funds, private equity & subprime credits, wen wunderts?"
Mit besten Wünschen für Ihre Gesundheit und für Ihre weitergehenden Bemühungen zum Schutz und zur Förderung des Finanzplatzes Schweiz und des common good.
cp.2580 1211 Genève 2 022-7400362 079-6047707 firstname.lastname@example.org
Kohlberg, Kravis Clears Final RJR Hurdle
By KURT EICHENWALD
Removing the final obstacle to the completion of
the huge leveraged buyout of RJR Nabisco Inc., a Federal district judge
ruled yesterday that two bondholders had failed to prove that the deal
should be blocked. In his ruling, which was not expected so quickly, Judge
John M. Walker removed a temporary prohibition he had ordered earlier that
prevented Kohlberg, Kravis, Roberts & Company, the New York investment
firm that bought out RJR Nabisco, from completing a merger of the company.
The plaintiffs in the case, the Metropolitan Life Insurance Company and the Jefferson-Pilot Life Insurance Company, had been seeking to recover what they contend are large damages caused by the buyout. The two companies filed the action against RJR Nabisco and F. Ross Johnson, the RJR chief executive who began the management buyout bid. The management group was eventually outbid by Kohlberg, Kravis, which offered $24.88 billion for the company's shares.
When RJR Nabisco's management announced that the group led by Mr. Johnson was considering taking the company private, the value of its outstanding bonds plunged by almost $1 billion. The plaintiffs in the lawsuit contend that the action was unprecedented and outrageous.
In a leveraged buyout, a company takes on additional debt to buy out shareholders. Frequently, the outstanding debt, which is often downgraded by the credit agencies, plunges in value. Bondholders worry that the debt-laden company will not be able to make its interest payments, and many investors sell bonds that go from high grade to low grade.
The RJR Nabisco deal is now expected to be finished by about March 31, a lawyer in the case told Judge Walker. Metropolitan Life and Jefferson-Pilot may still pursue their damage claims against the company. If a court eventually finds that the bondholders were damaged, the company could simply refinance its debt to meet any new obligations, a lawyer for RJR Nabisco said.
In arguments before Judge Walker, Phillip Howard, a lawyer for the plaintiffs, said that the buyout had been a breach of ''good faith'' by RJR Nabisco that the two insurance companies say they believe govern bond purchases in the public market.
The size of the deal, Mr. Howard said, has all but destroyed the bond market as it had been understood before the buyout. ''The bond market doesn't exist after RJR,'' Mr. Howard said. ''The market only stopped functioning when RJR made its announcement.''
When asked by Judge Walker why Metropolitan did not sell the bonds when it became concerned about buyout activity, Mr. Howard said that if the company had taken such action, others might follow and the bond market ''would have disappeared.''
Judge Orders Nabisco Halt
A state judge today issued a temporary restraining
order blocking the record $24.88 billion acquisition of RJR Nabisco Inc.
by Kohlberg, Kravis, Roberts & Company, but RJR Nabisco said the order
should not affect the deal. Judge James Harrill Jr. of the Forsyth County
District Court issued the order and set an April 17 hearing on a motion
by Swiss investors to block
The investors have filed a suit in Switzerland contending that the buyout hurt investors by diminishing the value of RJR Nabisco bonds. RJR Nabisco officials said in a two-paragraph written statement that they believed the order was improper and that the court action would not affect the closing of the deal.
The transaction is expected to be made final after an RJR Nabisco shareholders' meeting scheduled for April 27.
Amerikanischer Richter schützt Basler Nabisco-Urteil
Die Basler Zivilgerichtsverfügung, welche dem amerikanischen Nahrungs- und Genussmittelgiganten Nabisco die am 27. April geplante Reorganisation verbietet, solange die Verluste von schweizerischen Nabisco-Obligationaren nicht gedeckt sind, wurde von einem amerikanischen Richter temporär geschützt. Am 7. April unterzeichnete Richter James.A. Harrill in Winston-Salem, North Carolina, eine bis zum 17. April gültige provisorische Bestätigung des Basler Fusionsverbotes.Basel. Unterdessen arbeitet das Zivilgericht Basel-Stadt auf Betreiben des Basler Nabisco-Anwaltes Michel Pfeifer an der «Bestätigung, Aufhebung oder Abänderung» seines ersten Urteils. Desgleichen an der Feststellungsklage des Bankvereins gegen Nabisco. Das Urteil über die N abisco-Berufung soll «Anfang nächster Woche» herauskommen, wie Zivilgerichtsprâsident Jürg Zogg gegenüber der BaZ erklârte.
Basler Nabisco-Klage den «Boden entzogen»
Erich Reyhl, Wirtschaftsredaktor
Genf. Die superprovisorische Verfügung
mit einem Fusionsverbot für den Nahrungsmittel- und Genussmittelgiganten
Nabisco, welche der Einzelrichter des Zivilgerichtes BaselStadt Jürg
Zogg am 20. März erlassen hat, ist von ihm selbst wieder aufgehoben
worden, weil sie «bundesrechtswidrig und damit unzulässig»
Die drohende Gefahr einer schweren Schädigung der schweizerischen Nabisco Obligationâre wurde vom Basler Richter erneut bestätigt. Zur Abwendung dieser Gefahr wurden die Obligationäre jedoch entweder auf die laufende Klage des schweizerischen Bankvereins verwiesen, oder aber auf eine weitere Klage unter Bundesrecht.
Mit dem neuen Basler Entscheid erlischt auch die kürzlich in den USA gegen Nabisco gefallene Bestätigung des früheren Basler Urteils.
Richter Zogg gab mit seiner neuesten Verfügung den juristischen Argumenten des Basler Nabisco Anwaltes Michel Pfeifer recht, wies aber seine Behauptung zurück, dass den Gesuchstellern (Inhabern von Nabisco-Obligationen) «kein erheblicher Nachteil» drohe, sowie der für den 27. April vorgesehene «Ärger keine Gefâhrdung für die Ansprüche der Gläubiger darstelle», Diesbezüglich könne «nicht unerwähnt bleiben, dass diese Behauptung als sehr gewagt erscheint und kaum mit gutem Gewissen aufrecht zu erhalten ist. Wie sie (Nabisco) nämlich angesichts der im Verhâltnis zu ihrem ausgewiesenen Nettovermögen riesenhaften Schuldverpflichtungen, die sie sich mit dem Vollzug der Fusion aufbürdet, eine Schädigung der Obligationäre ausschliessen will, ist voll ihr Geheimnis geblieben. Zukünftige Gewinnerwartungen, wie sie der Gesuchsbeklagte (Nabisco) offensicht lich hat, dürften jedenfall kaum genügen, um die Anleihensgläbiger beruhigt und vertrauensvoll dem Jahr 200l, in welchem die Anleihe ordentlicherweise zur Rückzablung fällig würde, entgegenzusehen.» So Richter Zogg, der mit der
Schelte weiterfâhrt: «Diese gigantische Finanzoperation soll denn wohl auch den finanziellen Interessen ganz anderer Personen (wir werden darauf zurückkommen, die Red.) dienen, und sie macht in bedenklicher Weise den Anschein, dass dabei den Interessen der Anleihensgläubiger keinerlei Gewicht beigemessen werden soll.» Dies mache es ihm denn auch alles andere als leicht, die superprovisorische Verfügung wieder aufzuheben, erklärt der Präsident des Zivilgerichtes Basel-Stadt.
Jürg Zogg stellt aber fest, dass seiner früheren Verfügung unter stadtbaslerischem Recht die «Vertragsgrundlage» fehlte. Ausserdem sprach er zweien der drei Kläger, Enrico Querio in Genf und der Schweizer Investoren Schutzvereinigung die Klageberechtigung ab, weil sie den Besitz von Nabisco-Obligationen nicht genügend dokumentiert hatten.
So weit die langen juristischen Argumente (das neue Urteil umfasst 11 Seiten) überhaupt in einem Zeitungsbericht zusammengefasst werden können, scheint es darum gegangen zu sein, ob die Kläger die «Erhaltung der Existenz» der RJR Nabisco anstrebten, oder aber nur, oder hauptsächlich, Geldforderungen zur Sicherstellung ihrer Verluste auf den Obligationen, welche sie besitzen, stellten. Im ersten Fall hätte eventuell das stadtbaslerische Recht greifen können, obwohl dann die weitere Frage aufkommt, ob die vertraglichen Rechte der Obligationäre ausreichten. Dies scheint nicht der Fall. Die Obligationäre sind durch den Schweizerischen Bankverein, der die Obligationen auflegte, offensichtlich nicht genügend abgesichert worden. Aber wahrscheinlich treffe der zweite Fall zu. «Bei näherern Hinsehen entpuppte sich das Interesse der Gesuchsteller deshalb doch primär als auf die Erhaltung des Vermögens ihrer Schuldnerin und nicht auf die Erhaltung der Gesuchsbeklagten (Nabisco) selbst gerichtet.»
Der Schutz der in den Obligationen verbrieften Geldforderungen wurde vom Basler Gericht als «unbestreitbar berechtigt» erkannt, dieser finde jedoch «seine Regelung im SchKG und zwar in abschliessender Weise». Kommentare der Parteien zu dieser sicherlich noch nicht letzten Episode im Streit um Nabisco waren nicht sofort erhältlich.
Der Schutz der Obligationäre der RJR-Anleihe
Swiss Judge Lifts Order on RJR Deal
A judge in Switzerland has lifted a temporary restraining order that could have blocked a portion of the acquisition of RJR Nabisco Inc. by Kohlberg, Kravis, Roberts & Company. The judge had issued the temporary restraining order March 20 in response to a lawsuit filed by three bondholders in Switzerland who contended that the $25 billion buyout of RJR Nabisco, based in Atlanta, had diminished the value of their holdings.
The company argued at a hearing March 28 that there was no basis for the order. At least three other lawsuits are pending in the United States, contending that the merger reduced the value of RJR Nabisco bonds.
Kohlberg, Kravis Now RJR's Owner
The buyout firm Kohlberg, Kravis, Roberts & Company completed its record $24.53 billion acquisition of RJR Nabisco Inc. Trading in Nabisco's stock on the New York Stock Exchange was to cease at the end of the day. The completion came a day after shareholders formally approved the buyout at a special meeting in Wilmington, Del. Company officials said about 85 percent of Nabisco's shares were voted in favor of the merger.
Separately, Nabisco announced Thursday that it would move its headquarters from Atlanta to the New York City area by the end of the year. The company will decide over the next few weeks whether layoffs are necessary, said Pauline Howes, an RJR Nabisco spokeswoman. About 450 RJR Nabisco employees work in Atlanta, she said.
RJR Nabisco Will Maintain Guarantees on Swiss Bonds
RJR Nabisco Inc. has chosen not to ask Swiss courts
to decide whether its $25 billion buyout by Kohlberg, Kravis, Roberts &
Company constituted a reorganization of the company, the Swiss Bank Corporation
said today. The action by RJR Nabisco means that the letters of credit
guaranteeing three bond issues in Switzerland will remain in place, Swiss
Swiss Bank and J. P. Morgan Securities (Switzerland) Ltd., the lead managers, had said they would call the bonds early if RJR Nabisco did not back them with letters of credit. The move was designed to address bondholders' concerns that their securities were threatened by the leveraged buyout approved last April.
RJR Nabisco had reserved the right to ask Swiss courts to decide whether the buyout represented a reorganization under terms of the bond covenant, but will not exercise that right, Swiss Bank said.
Of the three bond issues involved, one is denominated in Swiss francs and two in dollars. J. P. Morgan was lead manager for a 275 million Swiss franc offering of 5 3/8 percent, 15-year bonds due in 2000 and a $124 million offering of a 6 percent dual-currency, 18-year bond issue due in 1994.
Swiss Bank was the lead manager for a $120 million, 5 3/8 percent-10 percent, dual-currency step-up coupon bond over 15 years due in 2001.
The guarantees installed in May will lapse only if the A rating the bonds carried before the buyout is restored.
RJR's Brave New World
By CLAUDIA H. DEUTSCH
Last week was not a happy one in the ''junk bond'' market. As the Campeau Corporation's highly leveraged empire started to crumble, fears - some might even say panic - about the fate of other companies that had gone private through junk bond-financed leveraged buyouts swept Wall Street. Junk bond prices plummeted, dragging down even bonds that analysts had thought safe.
Not surprisingly, a lot of eyes turned to RJR Nabisco Inc., the giant food and tobacco company that Kohlberg, Kravis, Roberts & Company took private four months ago in the biggest buyout in history. RJR's bonds have moved down along with the rest of the market, raising the big question: Can any company really handle $25 billion in debt?
RJR's early signs have been stellar - increased operating earnings, a flurry of new products, an effective cost-cutting program. But will that make the RJR deal a success? Or are Campeau's problems a harbinger of troubles at RJR?
AT A GLANCE RJR Nabisco
All dollar amounts in thousands, except per share data.
Three months ended
June 30 1989 1988
Revenues $3,911,000 $3,750,000
Net Income (309,000) 354,000
Earnings/share -- $1.50
Dec. 31 1988 1987
Revenues $16,956,000 $15,766,000
Net Income 1,393,000 1,209,000
Earnings/share $5.92 $4.70
Total assets, June 30, 1989 $34,629,000
Current assets 6,045,000
Current liabilities 7,378,000
Long-term debt 22,279,000
Employees, Aug. 31, 1989 106,000
Headquarters New York
Wall Street, apparently, still sees RJR as a good bet - the prices on RJR's bonds have not dropped nearly as sharply as they have on other issues. And Louis V. Gerstner Jr., the 47-year-old former American Express executive who signed on as RJR's new chief in April, exudes confidence. ''Yes, there is life, even excitement, after an LBO,'' he said.
But post-buyout life is not easy for RJR. The sale of its European food businesses, of Chun King and, most recently, of Del Monte has made the company even more dependent on tobacco and baked goods. Yet the tobacco unit, whose cash-gushing ability is one of the cornerstones on which RJR's debt service is built, continues to lose domestic share, particularly to the Philip Morris Companies.
RJR's cookie and cracker business is still dominant in its markets, but some analysts question whether the debt-ridden company will have the resources to keep it growing. And Mr. Gerstner and his new management team have discharged so many people - 300 at Atlanta headquarters, another few hundred at Nabisco Brands and 1,640 people at the tobacco company - that the remaining workers are in shock.
''We're getting a lot of calls from their workers and if ever there was an ideal opportunity to organize them, it is now,'' said Joseph D. Masterson, international vice president of the Bakery, Confectionery and Tobacco Workers International Union, which represents workers at every American tobacco company except RJR's R. J. Reynolds Tobacco Company unit.
Cash, of course, remains the biggest question mark. For now, the tobacco company continues to spew forth profit. And RJR got $2.5 billion, considered top dollar, for the five European food businesses it sold in June. But the $2.3 billion or so that RJR will probably get when the recent deals to sell the various chunks of Del Monte are finalized is about $500 million below what the company is said to have expected.
If interest rates soar, if the bond market plunges lower or if tobacco sales decline more, RJR may have to cut a lot further into bone than Kohlberg, Kravis had bargained for.
''I wouldn't be surprised if they have to sell Planter's,'' said one former RJR executive, referring to the RJR nut and snack division that, to date, has not been rumored to be on the chopping block.
Charles E. Hugel, chairman of Combustion Engineering Inc. and RJR's former non-executive chairman, has deeper worries. ''I am concerned about their ability to fund modernization, research, all the future-oriented things,'' he said. ''A lot will depend on what happens to interest rates, and on how well they stem their slide in tobacco.'' Different Signals
Still, it is hard to forecast doom at RJR. ''A lot of people said that RJR, because of its size, would be the LBO that shows the system has gone too far,'' noted Harbir Singh, an associate professor of management at the Wharton School. ''Instead, it is showing clear signs of working out.''
Indeed, while RJR posted a loss in net income in the second quarter because of the huge debt expense, operating income before good will amortization was up 24 percent, to $848 million, from the second quarter of last year, on an increase of just 4 percent in net sales. Management layers have been slashed, and many of the perks are gone: six of the 11 corporate jets have been sold, limousine bills have been halved, the corporate apartment in Manhattan's posh Essex House is no more.
''We are running to the bone,'' said H. John Greeniaus, chief executive of Nabisco Brands Inc. ''Before, we might have lived with 5 percent fat.''
But the austerity efforts have not been indiscriminate. Nabisco Brands, for example, expects to spend $350 million on marketing this year, the same level as in 1988. And although introducing new products means huge marketing costs, RJR has been sending them flying out the door - nine new items from the Planter's division last month, 12 from the Nabisco Biscuit Company this month and a cigarette called Chelsea, which supposedly yields a nice-smelling smoke, now in test markets.
''Everyone assumes our motivation for everything is the LBO, but most of what we're doing needed to be done before,'' said Mr. Gerstner. James W. Johnston, the new Reynolds Tobacco chief, agrees. ''The changes were not driven just by a need to save money but by a need to build a stronger company,'' he said.
To be sure, RJR had a lot going for it to ease the buyout path. More than half its profits come from tobacco, which is traditionally recession-proof and thus can hedge against any worst-case economic scenario.
''That tobacco company has a great enough cash flow to let RJR weather any interest rate turn-ups,'' said Edward J. Robinson, the former chief financial officer who left RJR in March to join Avon Products Inc. Moreover, Edward A. Horrigan Jr., who ran Reynolds Tobacco until he, too, resigned in March, says that since 1980 RJR has pumped close to $2 billion into upgrading its tobacco plants. ''The modernization program was fundamentally complete before the LBO,'' he said. Easier to Dismantle
Structurally, too, RJR was well positioned for selling assets to pay down debt. It has long been decentralized, which made it easier to lop off businesses without wrenching those that remained. And well-known brands are commanding premiums these days, so it has got good prices for most of its divestitures. ''RJR was never an unwieldy conglomeration of things like Beatrice,'' said Gailen L. Hite, a finance professor at the Columbia Business School.
On Wall Street, cares about whether RJR is typical or unusual among buyouts pale next to two concerns: How well are its bonds faring now? And what will the company look like on May 1, 1993, when holders of its debt securities have the option of converting to equity? On both counts, analysts are optimistic. ''RJR is a very well-positioned food company and a reasonably well-positioned tobacco company generating tremendous growth and profits and cash flow,'' said Kurt A. Feuerman, an analyst at Drexel Burnham Lambert Inc. Despite last week's troubles in the junk bond market, Mr. Feuerman is sticking with his buy recommendation on the senior converting debentures of the RJR Holdings Corporation - the official name for RJR Nabisco's parent company.
Edward P. Mally, Salomon Brothers' junk bond analyst, is also still recommending RJR paper. ''The cash-generating ability of this company is such that it can both pay debt and support growth,'' he said.
Sustaining the cash flow depends upon the adroitness with which RJR's new management team addresses the company's problems. And on the surface, Mr. Gerstner seems a strange choice to lead the charge.
He has never been a chief executive before. He has had little packaged-goods experience. And his former company, American Express, is a money machine, where a manager can generally count on virtually infinite resources - a luxury that RJR, with its debt load, cannot afford.
But those who know Mr. Gerstner say he is a quick study. ''The pharmaceutical business is pretty far away from financial services, too, but he has made a substantial contribution just by asking the right questions,'' said Richard M. Furlaud, chairman of the Squibb Corporation, on whose board Mr. Gerstner sits. G. Richard Thoman, chief executive of American Express International, calls Mr. Gerstner ''an incredible strategist who, in a roomful of noise and opinion, will say the three sentences that crystallize where we have to go.''
Smart or not, Mr. Gerstner is in for a rough time. Most of RJR's top management team had been cronies of F. Ross Johnson, Mr. Gerstner's predecessor, and many had joined Mr. Johnson in an earlier, abortive attempt to take RJR private. After Mr. Johnson was forced to resign, there was little doubt that the rest of his team would leave, or be pushed.
And so it happened. Just weeks after RJR announced Mr. Gerstner's appointment in March, Mr. Horrigan and Mr. Robinson jumped ship. They were closely followed by the general counsel, the controller, the treasurer and assorted lower-level managers. ''I had to rebuild my entire team at the same time that I was trying to understand a company of gigantic scale,'' Mr. Gerstner recalled. Emotional Chaos
RJR, meanwhile, was in emotional chaos. It went through enormous upheaval four years ago, when R. J. Reynolds Tobacco merged with Nabisco Brands, and Mr. Johnson, then Nabisco's chief, superimposed a fast-paced culture on what had been a sleepy, Southern company. Now, trauma was upon RJR again. Every RJR employee knew that assets would be sold and jobs eliminated to finance the buyout. But no one knew whose job or division would disappear.
There were more subtle psychological problems, too. Not only had Mr. Johnson tried to take the company private at a fraction of its worth, he had later offered a game plan for a higher bid that would have entailed cutting the benefits of much of the rank-and-file work force. Employees inevitably began to wonder, if their chief executive could betray them so easily, and if Kohlberg, Kravis could earmark billions of dollars of assets as unnecessary and thus saleable, was RJR ever as good as they had thought to begin with?
''This is a company that just a few years ago was ranked ninth on Fortune's most admired list, yet suddenly its whole raison d'etre was called into question,'' Mr. Gerstner said.
Mr. Gerstner was no calming influence. When he took over, there were 650 people on the corporate staff, ''literally hundreds more than fits my management style,'' he said. He dismissed about 300 of them almost immediately. And he announced that those who were left would be moved from Atlanta to New York City.
The speed with which that announcement came sent a new wave of shudders through the shell-shocked company, which Mr. Johnson had moved from Winston-Salem, N.C., to Atlanta just two years before. ''Everyone expected the company to move to New York, and most have accepted job loss as a part of modern corporate life,'' said W. G. Champion Mitchell, the former senior vice president of external affairs who left in March. ''But whenever a bunch of people are let go there is sadness.''
Still, current and former RJR employees say that the sadness did not translate into anger. ''We were treated fantastically well in terms of severance, and RJR provided outplacement,'' said one former executive who, with much of his staff, is out of a job. ''We really can't complain.'' Change in Tone
Remaining employees may find more to gripe about. Anyone used to Mr. Johnson's low-key, affable style may find Mr. Gerstner a bit hard to take. ''Ross is a fun-loving, playful guy, easygoing and charming,'' Mr. Greeniaus said. ''Lou can be charming when he wants to be, but his attitude is, 'Hey, we're mature professionals and I don't have to go around stroking everyone.' ''
With most of the dismissals behind him and his management team rebuilt, Mr. Gerstner may have more chance to show his charming side.
Many of his new hires have experience germane to RJR. Mr. Johnston, the new tobacco chief, had been with Reynolds Tobacco for five years before joining Citibank in 1984. And Karl von der Heyden, the new chief financial officer, comes over from the H. J. Heinz Company, a food company certainly as prominent as Nabisco.
Already, Mr. Gerstner is looking to push more responsibility on all of them. ''Now it's hierarchical, with all the power coming out of me,'' he said. ''I want it to be more like spokes on a wheel, with me at the hub.''
The new team is now tackling the strategic issues facing RJR. For example, they have decided not to go after more share for Nabisco Brands, which already commands an impressive 44 percent of the market for biscuits, but to try to maintain existing share instead. That strategy has been adopted by many consumer products companies - the Colgate-Palmolive Company being a recent example - to general applause: to wit, going for incremental share points is often a profitless exercise.
Far deeper changes are needed at Reynolds Tobacco. The tobacco company is still reeling from last year's $150 million failure of its smokeless cigarette, Premier. Mr. Horrigan, for one, still believes that smokers, who overwhelmingly rejected Premier's taste, would have grown acclimated to the product in time, and that ''there will be a Premier-like product out there again.'' But at this point, no one can guarantee that it will be RJR's. A Dwindling Share
RJR has a more immediate problem: it continues to lose domestic market share. ''RJR has got to get unit sales up,'' said Roy D. Burry, a Kidder, Peabody & Company analyst.
That will be no easy task. Winston, RJR's flagship brand, has traditionally appealed to older smokers, who are quitting smoking in droves. And while the company hopes to push Camel into the young-adult market, most analysts say that Philip Morris's Marlboro owns that market. ''Philip Morris's sales force has revved up to high, while this takeover business has discombobulated RJR's,'' said Emanuel Goldman, an analyst with Paine Webber Inc.
Reynolds Tobacco is trying mightily to get its act back together. Since the buyout, it has consolidated all its domestic operations, and is experimenting with new ways to group workers into more productive teams. And it is phasing out trade loading, a costly but common industry practice of selling distributors more cigarettes than smokers are buying. The practice lets the tobacco companies move inventory, but it gives distributors the benefits of price increases.
Those moves, combined with a spurt in international sales and the plant modernizations, yielded a 16 percent increase in the tobacco company's operating income last quarter, over the same quarter of 1988. And Mr. Gerstner is predicting more of the same. ''We will generate the cash flow needed to bring the debt down enough so that we can again make acquisitions,'' Mr. Gerstner said.
Maybe so - but then again, maybe not. ''I remember the first year after KKR took Beatrice private, everyone said what a great deal it was,'' recalled a high-level executive at a rival buyout firm. ''When the dust settled, the sum of the parts wasn't any greater than the whole. Will RJR be better? It is too soon to tell.''
RJR Nabisco's Disgruntled Bondholders
By LESLIE WAYNE
LEAD: A ticking time bomb with RJR Nabisco Inc.'s name on it is wending its way through Federal court. It's a lawsuit filed by Metropolitan Life Insurance Company and Jefferson-Pilot Life Insurance Company which, if successful, could force the refinancing of some $5 billion in outstanding RJR Nabisco debt and allow some disgruntled bondholders to get their money back.
A ticking time bomb with RJR Nabisco Inc.'s name on it is wending its way through Federal court. It's a lawsuit filed by Metropolitan Life Insurance Company and Jefferson-Pilot Life Insurance Company which, if successful, could force the refinancing of some $5 billion in outstanding RJR Nabisco debt and allow some disgruntled bondholders to get their money back.
Met Life, one of the nation's largest insurance companies, and Jefferson-Pilot, a small insurer based in Greensboro, N.C., are angry because the investment-grade debt they bought before Kohlberg, Kravis, Roberts & Company engineered the RJR leveraged buyout is now worth much less. Since the buyout was announced in 1988, they have been hauling the tobacco and food giant into court to press their claims.
First, Met Life and Jefferson-Pilot tried to halt the deal before it closed, but failed in court. Last summer one part of a suit they filed against RJR was dismissed, but the judge let stand their claim that RJR violated ''negative pledge covenants'' which are routinely inserted into most bond indentures to protect unsecured bondholders. RJR did so, the plaintiffs claim, by pledging and ultimately selling some $6 billion in RJR assets to pay off buyout-related bank debt.
Met Life and Jefferson-Pilot say RJR defaulted on these covenants and they are owed their money - some $250 million in Met Life's case and about $10 million for Jefferson-Pilot. They claim that a decision in their favor could trigger a stampede of other bondholders who bought RJR bonds before the company went private and then watched as the value of their holdings plunged by an estimated $1 billion.
''We're the only plaintiffs in the suit, but if we're successful, the next day other bondholders will run into court saying 'We want to be paid, too,''' said Harry P. Kamen, an attorney for Met Life. A victory would apply only to holders of some $5 billion in RJR Nabisco bonds issued before the 1988 buyout and would not affect buyers of some $15 billion in high-yield securities issued to finance the buyout. Still, while the Met Life claim is not a class action, Mr. Kamen and his fellow plaintiffs say it is ''not a $250 million lawsuit, but a $5 billion lawsuit.''
Negative pledge covenants protect bondholder claims on the earning power of a corporation's assets. These covenants say that a corporation that issues debt cannot pledge corporate assets to third parties or put liens on those assets without giving equal protection to existing bondholders.
Met Life and Jefferson-Pilot, however, contend that RJR Nabisco defaulted on this covenant when it sold $6 billion in assets to meet bank obligations that are coming due in August. ''If they can take $6 billion in assets and use it to pay the banks, then that's $6 billion of assets not available for us,'' said Mr. Kamen. ''We say that the purpose of the covenant is to protect us against someone ahead of us.''
Another person in Met Life's camp, who declined to be identified, was more succinct: ''We were cheated.''
If Met Life and Jefferson-Pilot win, and if other bondholders go to court as well, RJR Nabisco could be forced to fork over $5 billion, which means RJR would most likely have to refinance this debt at higher interest rates. Not only is this an unappealing prospect, but the timing is particularly inopportune. K.K.R. is currently struggling with the question of how to meet upcoming obligations on some $6 billion in junk securities issued with ''reset'' provisions. These provisions force RJR to drastically increase coupon interest payments on ''reset'' bonds trading below par - which is where RJR debt trades these days. The last thing K.K.R. needs while it juggles the reset question is to worry about refinancing another $5 billion.
RJR and K.K.R. executives have little to say on the subject. A spokesman for K.K.R. said the firm would not comment. Lawrence R. Ricciardi, RJR's general counsel, did talk, but shed little light. ''I've never understood the basis for Met Life's claims and I still don't,'' he said. ''I do not think the transactions breach the covenants, and I'm confident the court will find for what I've just said.''
When asked to explain why, Mr. Ricciardi responded: ''This is a very complicated subject and once we start talking it is very hard to stop. I want this to be tried in the court and not in a newspaper. I'm really very uncomfortable talking about it.''
He was, however, puzzled by Met Life's motives. ''The filing of this case was part of a broader public relations campaign that Met Life has undertaken,'' he said. ''And I'm not sure why. They are a great institution. I must say this lawsuit confuses me.''
Bondholders, however, are cheering on Met Life. One member of the Met Life legal team said he is called by money managers and fellow bondholders ''all the time.'' (The case is in the discovery phase at present and is expected to be heard this summer before Federal Judge Michael B. Mukasey in the Southern District Court of New York.) Jeffrey Altman, an analyst at Mutual Series Funds in Short Hills, N.J. said that most bondholders would tender their bonds if Met Life wins. Vera M. Young, a vice president at American National Insurance Company in Galveston, Tex., was more blunt: ''You betcha, we would.''
Ms. Young's company holds $18 million in RJR debt that has fallen in value by about one-third. ''We're sick and tired of takeovers,'' said Ms. Young. ''We bought a double A bond and now it's a double B. That gets pretty old fast.''
But Ms. Young felt the courts would provide little relief for beleaguered bondholders. ''If they did that, a lot of other companies where bondholders are in the same fix would do the same thing,'' she said. ''It would be a landslide, so I don't think the courts would give a favorable ruling.'' Like many others, however, Ms. Young is voting with her feet. American National no longer buys corporate bonds.
Is Kravis Playing A Waiting Game?
By ANISE C. WALLACE
LEAD: IN the big-money game being played by RJR Nabisco Inc. and its bondholders, Henry Kravis put an important card on the table this week when it was learned that he had raised $1.7 billion from his partners to invest in RJR Nabisco.
IN the big-money game being played by RJR Nabisco Inc. and its bondholders, Henry Kravis put an important card on the table this week when it was learned that he had raised $1.7 billion from his partners to invest in RJR Nabisco.
Mr. Kravis, whose buyout firm, Kohlberg, Kravis, Roberts & Company, took RJR private in 1989 for $25 billion, the largest leveraged buyout in history, had told his partners that they could earn 25 to 30 percent by restructuring the debt of the company.
Now, holders of the company's ''junk bonds'' are speculating that he will spend some or all of that money with them. As a result, some RJR bonds surged more than $70 for every $1,000 in face value Wednesday, and trading was brisk again yesterday, although prices closed mostly unchanged from the day before.
But a handful of market participants say Mr. Kravis may not invest the $1.7 billion at all and instead sit back and hope that speculators, cheered by reports of the cash at hand, drive the prices of the company's bonds higher.
''You can't come out and say they're manipulating the market, but if they balance it right, they'll have to do nothing,'' said Dirk Van Doren, a junk bond analyst who follows RJR Nabisco for McCarthy Crisanti Maffei in Montpelier, Vt. ''They have shown their hand to say this is what we can do.''
Some other investors agree, pointing out that as long as the bond prices rise, Mr. Kravis has no need to buy back the debt or propose an exchange offer. ''Why fuel the fire when the fire is burning brightly,'' said Barbara L. Kenworthy, a mutual fund manager at the Dreyfus Corporation in New York.
But sooner or later, under the rules of the financing of the RJR deal, Mr. Kravis must play a card. In April 1991, the interest rate on $6 billion in junk bonds that were issued in the buyout must be reset so that, in the opinion of the company's two investment bankers, they will trade at their par value, that is, at 100 cents to the dollar, excluding the interest that has accrued. (These bonds pay interest not in cash but in more securities.) Since the RJR bonds have been trading at less than their face value in the distressed market for junk bonds, this is likely to mean that the interest rate will have to be set higher, something that would cost Mr. Kravis and his investors more money.
One issue, for instance, the senior converting debentures due in 2009, was quoted at $90.75 for every $100 of face value yesterday. With accrued interest, their value is $120.50. If their interest rate were to be reset to yield a price of $100 plus accrued interest, they would trade at about $135.50, said Derek A. Jones, a vice president at J.P. Morgan Securities Inc. ''They've got a way to go,'' he said.
Many investors are now speculating that Mr. Kravis will take some steps to shore up the prices of the bonds in the meantime. Among his options are to buy back the bonds directly in the open market, to make an exchange offer to the holders for new securities or equity in the company, to inject more equity into RJR, or to do a combination of things.
Without taking some action on the reset problem, say analysts, RJR will be unable to borrow more cash either in the junk bond market or from commercial banks, which already hold more than $6 billion in RJR debt used for the buyout. Neither group now is likely to refinance a $1.2 billion bank loan that comes due next February, Mr. Jones said. ''They can't do that as long as the reset is hanging over them,'' he said. ''The banks really control this.''
Because Mr. Kravis and his companies may have to use junk bonds for cash in the future, some fund managers in the junk bond market hope that he is willing to help the bondholders. ''He likes this well,'' said Rebecca H. Garner, vice president of Associated Capital Investors in Little Rock, Ark.
Earlier this year, at a conference in Arizona, Mr. Kravis angered many junk bond investors when he suggested that they were selling RJR bonds in panic. Solving the reset problem, Ms. Garner said, could buy Mr. Kravis some ''cheap good will.''
Refinancing Plan Sought For Nabisco
By ANISE C. WALLACE
LEAD: RJR Nabisco Inc., which went private in 1989 in the largest leveraged buyout ever, announced yesterday that its biggest stockholder, Kohlberg, Kravis, Roberts & Company, was working to refinance the heavily indebted company.
RJR Nabisco Inc., which went private in 1989 in the largest leveraged buyout ever, announced yesterday that its biggest stockholder, Kohlberg, Kravis, Roberts & Company, was working to refinance the heavily indebted company.
Prices of some of the company's ''junk bonds'' soared yesterday as investors speculated that RJR or Kohlberg, Kravis would buy back some of the debt.
Prices of one issue jumped $6.25, to $97.125, in heavy trading. Prices of other RJR bonds were up more than 4 points, or $40 for every $1,000 in face amount. The bonds were originally issued to stockholders of RJR as part of the $25 billion buyout.
The company provided sketchy details about its plans after a report yesterday in The Wall Street Journal. In a statement, RJR said that ''subject to certain conditions,'' Kohlberg, Kravis would inject $1.7 billion in common stock into the company at the time it resets the interest rate on two bond offerings issued as part of the buyout.
In addition to the $1.7 billion in equity, people who have seen the terms of the proposed refinancing said, RJR hopes to raise about $2.2 billion in new bank loans and exchange about $1.5 billion in preferred stock for outstanding bonds.
In the announcement, the company also said it was in discussions with its commercial banks to amend lending agreements so that it could repurchase a significant amount of securities that were issued as part of the buyout. And it said it was discussing with a group of banks a refinancing of $1 billion of increasing-rate notes. The company said it was considering as part of any plan exchanging cash and convertible preferred stock for some of its outstanding bonds.
The company did not identify which bonds would be part of a possible exchange offer, but investors speculated that RJR would make an exchange offer for the senior converting debentures due in 2009. This is the smaller of the two securities with the controversial ''reset'' feature and is convertible into 25 percent of the company's common stock.
In its statement yesterday, RJR said that it expected to begin its plan by the end of July. Under the buyout's terms, the interest rate on the two bond issues must be reset by next April at a rate that in the opinion of the company's investment bankers will make the bonds trade at their par value, or 100 cents on the dollar plus accrued interest. But when the bonds dropped to about half their face value during the turmoil in the junk bond market earlier this year, the interest rate necessary to get those prices back up to par value would have been prohibitive.
Prices of these bonds soared almost 10 points yesterday morning, but traders became skeptical when they read the carefully worded announcement. By the afternoon, prices of RJR bonds pulled back from their peak levels, traders said.
The refinancing is necessary, analysts said, not because of operating problems but because of financial troubles casued by the company's indebted capital structure. That structure was devised by bankers who assumed that the junk bond market would continuously provide capital to highly leveraged companies.
But the market for the low-rated bonds started to crumble last summer. In February, RJR was forced to postpone a $1.25 billion junk bond offering that would have been used to pay off bank debt.
But the key to RJR's troubles is what is known on Wall Street as the ''reset'' problem. And as long as this problem remains, RJR will probably be unable to borrow additional funds from the junk bond market or from commercial banks, analysts said.
''If they did not have the reset provisions they would not need to do this,'' said Raymond Garea, a junk bond analyst at Donaldson, Lufkin & Jenrette Inc.
Some analysts said that to get the banks' help, RJR needed to show that it could raise additional equity capital. Last week, Kohlberg, Kravis raised $1.7 billion from its partners -pension funds, insurance companies and banks - to restructure RJR's finances.
Mr. Garea said RJR was probably putting more equity in ''because that's what is required to get the banks to seriously consider this.''
Reset Issues Worth $6 Billion
The reset feature affects two RJR issues that together have a face value of $6 billion. Instead of paying interest in cash, these bonds pay it in more securities. Holders of the $1.8 billion in converting debentures due in 2009 can convert their securities into 25 percent of RJR's common stock in 1993. But if they do, they forfeit all the accrued interest. In addition, there is $4.1 billion in exchange debentures due in 2007.
While investors and analysts were cheered by the announcement some of them pointed out that the company had made no assurances of either an equity infusion or a buyback of bonds.
A Good Deal For K.K.R., But Will It Sell?
By FLOYD NORRIS
IS Henry Kravis, a man who gained wealth and fame through leverage and capital gains, actually embracing the idea of wealth through dividends?
That is the apparent aim of the latest dramatic restructuring of RJR Nabisco, the tobacco and food giant that Kohlberg, Kravis, Roberts & Company took private in 1989 in the biggest leveraged buyout ever and then took public again in 1991.
The company has survived, no small accomplishment given what happened with many other leveraged buyouts, but its public shareholders have not prospered. When they bought the stock at the offering almost two years ago, at $11.25 a share, the idea was that profits, and the share price, would soar as debt was paid down. In fact, the stock has fallen 26 percent to $8.375, while the Standard & Poor's 500 has risen 17 percent.
The new plan is to create two stocks from one. One will pay dividends based on food profits, the other from tobacco earnings. The company plans to raise $1.7 billion by selling new shares in the food operations, providing the financial flexibility to start paying dividends.
It is interesting that Mr. Kravis and his colleagues are embracing dividends now, just as the Clinton Administration wants to restore the tax break for capital gains, a move that makes dividend income less attractive. It probably reflects less of a change in ideology than a recognition that a tobacco company is unlikely to be a growth vehicle even if it does generate good cash flow.
If this deal goes through, it will be good news for RJR Nabisco, and for its shareholders. But after spurting the day the plan was announced, the RJR Nabisco price settled back and ended the week slightly lower. There was concern about higher cigarette taxes that President Clinton is expected to propose. But the slippage also may reflect doubts that the deal can be done.
The problem is likely to be selling the food shares. The company wants to get about $18 a share, and is offering promises of a 52-cent, or 2.9 percent, annual dividend. That is high for food stocks, but it may not completely reflect the risks. If the courts ever did make cigarette companies liable for smoking deaths, these shares would also suffer. Buyers will own a stake in the entire company, not just the food part.
What may raise questions is that the investment partnerships run by K.K.R., which now own 49 percent of RJR Nabisco, would keep that stake in the tobacco shares but evidently do not plan to buy any of the new food shares, cutting their stake in that side of the business to 30 percent.
The tobacco shares will yield about 6.1 percent, based on current prices. That is very attractive, and will help both K.K.R., whose partnerships stand to take in $244 million a year in dividends, and other current shareholders.
But to work, this deal needs investors who will buy the new food shares. The challenge will be to find buyers for a security that apparently does not interest the people who know it best.
July 28, 2008
After Delay, KKR Finds a Way to Go Public
By ANDREW ROSS SORKIN
Kohlberg Kravis Roberts, the storied private equity firm, is again preparing to become a public company on the New York Stock Exchange, the firm said Sunday.
The listing comes more than a year after Kohlberg Kravis originally announced plans to go public. Those plans were delayed as the credit market and the economy worsened.
The new plan, which would value the firm at $12 billion to $15 billion, is part of a complex deal in which Kohlberg Kravis will buy its publicly traded affiliate, KKR Private Equity Investors, which is listed on the Euronext in Amsterdam, for as much as $3.9 billion.
The deal amounts to a backdoor way for Kohlberg Kravis to become a publicly traded company without formally selling new shares in the firm. After the deal is completed, 21 percent of the firm’s shares will be sold on the open market while 79 percent of the shares will remain in the hands of the firm’s executives.
Kohlberg Kravis, which was founded in 1976 and whose takeover of RJR Nabisco was chronicled in the book “Barbarians at the Gate,” is trying to expand its business beyond private equity to become a much broader asset manager, with investments in hedge funds, real estate, infrastructure and fixed income.
“For K.K.R., this transaction provides us with additional capital for our business,” Henry R. Kravis and George Roberts, the cousins who founded the firm, said Sunday in a statement. “Moving forward with a public listing will allow K.K.R. to do what we do best — grow companies around the world and produce solid returns for our investors from a larger platform and a deeper capital base.”
The firm had sought to go public last summer, as the private equity boom was cresting. But after Blackstone Group’s public offering was derided by investors — its shares have fallen 50 percent since they began trading — Kohlberg Kravis delayed its debut. Other private equity firms, like Carlyle Group and Texas Pacific Group, had been studying plans for offerings but shelved them because of market conditions.
Kohlberg Kravis is widely credited with helping to create the model for leveraged buyouts, in which public companies, often seen as undervalued by investors, are bought with cash and a large amount of borrowed money. Private equity firms then make changes to the companies — like replacing management or selling divisions — before selling them or taking them public again, reaping profits along the way.
Kohlberg Kravis, which has had an annual rate of return of 26 percent since its inception, owns controlling stakes in private companies as varied as Toys “R” Us and TXU.
Of course, the great paradox of private equity firms’ pursuit of public offerings has not been lost on investors, with some questioning whether the firms are undermining the very model that they have said makes their investments so successful. Firms like Blackstone and Kohlberg Kravis have said that they will benefit by being public because they can use the currency of their shares to expand their business and attract and retain executives.
Kohlberg Kravis, still run by Mr. Kravis and Mr. Roberts, has been aggressively expanding over the last year in anticipation of its public listing, which will use the symbol KKR. Just last week, the firm hired William Sonneborn, former president and chief operating officer of the investment firm TCW, to help it develop its asset management business.
Prior to that, George Bilicic, the former head of Lazard’s global power and energy investment banking, was brought in to start an infrastructure fund. The firm also hired Ken Mehlman, the former chairman of the Republican National Committee, as its head of global public affairs, and hired its longtime outside lawyer, David J. Sorkin of Simpson Thacher & Bartlett, as general counsel.
It also hired a chief human resources officer and a chief information officer. In all, the firm, based in New York, has 500 employees, with nearly 100 being hired within the last year.
Kohlberg Kravis’s offering will differ from Blackstone’s. Unlike Blackstone’s offering, which allowed some longtime partners to reap immediate gains, no one at Kohlberg Kravis will be taking any money out of the firm. Its executives will have a six- to eight-year vesting period compared with three to four years at Blackstone.
Kohlberg Kravis’s acquisition of its European affiliate requires approval of more than 50 percent of shareholders. Once Kohlberg Kravis is public, it is expected to be controlled by an independent board; Blackstone’s board is controlled by insiders.
Under the terms of the deal with KKR Private Equity Investors its shareholders will exchange their shares, which closed at $10.50 on Friday, for Kohlberg Kravis shares.
Kohlberg Kravis executives say the firm should be valued at 10 to 12
times 2009 earnings, estimated at $1.2 billion.