Rjr Nabisco Case Study Analysis
Prior to the first round of the auction, the board announced that it would not extend the bidding period. This puts time pressure on the bidder’s consultant and at this point overloads the amount of information that the consultant needs to analyze.
After the first round of bidding (including the $ 94 and $ 100 per share offer of KKR), advisors to the Board’s Special Committee convened an informal meeting among the bidders and offered a $ 100 recommendation per share as the base price for the next auction round. . This seems to be a risky strategy that scares all auction groups, but the council has an alternative plan to split the RJR independently.
As the event progressed, more aggressive strategies began to prevail. The board advisor (prior to the second round) informed bidders that if RJR’s bid did not exceed the estimated restructuring value (estimated to be at least $ 100 / share), board members would be prepared to announce their own restructuring plan.
Selection of a Bid:
RJR Nabisco should consider simple payment methods to select the highest bid. To bid, they need to know the source of the funds so they know if they can pay us.
KKR pays $ 22.6 billion at a price of $ 75 per share. But RJR Nabisco is expected to earn $ 90 per share. However, KKR’s payment terms are the same as RJR Nabisco’s expectations, but KKR paid less for the transaction.
First Boston Group pays $ 98 to $ 110 per share, $ 5 per share, and $ 2 to $ 3 per share. Therefore, compared to KKR’s $ 75 per share offer, the offer is more favorable to RJR Nabisco, but First Boston Group has not informed the source that it will raise money for the ‘businesses.
Therefore, RJR Nabisco must seek funding from First Boston Group to acquire the business. If rejected, they must sign a contract to ensure that RJR Nabisco receives payment from First Boston Group. RJR Nabisco must choose First Boston Group, because it must pay a sufficient amount, which is in the interest of RJR Nabisco and its shareholders.................................
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