金融工程案例10-RJR.pptVIP

返回目录 Cases in Financial Engineering Instructor: Chen Miaoxin Reference:Robert M. Dammon, Kenneth B. Dunn. And Chester S. Pratt. 1993. The Relative Pricing of High-Yield Debt: The Case of RJR Nabisco Holdings Capital Corporation. the American Economic Review, 83 ( Dec.)  Part One: Background Background 1 The firm known in 1991 as RJR Nabisco was a descendant of the tobacco firm R.J. Reynolds, founded in 1875. Through acquisitions in the 1960s, the tobacco firm entered a variety of food businesses. After its 1985 merger, the firm was renamed RJR Nabisco. Background 2 In the late 1980s the food products industry experienced massive consolidation through mergers. In 1988 two main bidders proposed to take the RJR Nabisco private in a leveraged buyout contest: The Management Group Kohlberg, Kravis, Roberts Co. (KKR), a firm specializing in leveraged buyouts Background 3 At the end of a bidding war, KKR prevailed by offering shareholders $81 per share in cash plus a package of bonds valued at $28. The day before the first announcement of a possible takeover for RJR Nabisco, its stock had traded at $77.25. Thus, KKR offered common shareholders a 41% premium over the firm’s pre-takeover value. To finance the buyout, KKR increased RJR’s debt from $5 billion to $29 billion. Background 4 The new firm was structured as a series of holding companies. Each of these related entities had separate obligations, issued either in conjunction with the acquisition or, in the case of RJR Nabisco, Inc, the operating company, carried over from the taken-over firm. Part Two: Description of Securities Issuance In May 1989, RJR holdings Capital Corporation issued three nearly identical debt securities in connection with the leveraged buyout of RJR Nabisco by KKR $1.0 billion of 15-percent payment-in-kind subordinated debentures due 2001 (pay-in-kind bond) $4.1 billion of subordinated discount debentures due 2001 (deferred-coupon bond) $525 million of 13.5-percent subordinated debentures