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Henry Kravis: Rjr Nabisco
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On May 29th, Henry Kravis will speak to the ‘Current State of the Private Equity Business’. Mr. Kravis has been involved in some of the largest, most successful acquisitions via management buyouts, which included RJR Nabisco, Beatrice, Safeway and Duracell, among others. His firm has completed over 150 transactions with a total acquisition price of approximately $270 billion.
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Mr. Kravis cautioned the audience about worrying about short term spikes in the debt market, claiming that long term bond rates have been stable for five years despite 17 increases in the overnight rate. That said, he advocated the use of fixed rates in all deals. On RJR, for example, there was a “reset” feature in a loan document that allowed the bank to charge a higher interest rate after a certain date if the credit markets had become more expensive. To keep RJR solvent when the reset date arrived, KKR had to invest another $1.7 billion in equity on top of the US$1.3 billion he had already put into the deal.
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With first cousin George Roberts (see), partnered with fellow Bear Stearns mentor Jerome Kohlberg (see) to form leveraged buyout firm Kohlberg Kravis Roberts 1976. Used junk bonds to buy underperforming companies, reworked balance sheets, sold for profit. Kohlberg exited in 1987. "Barbarians at the gate" best known for $25 billion RJR Nabisco buyout 1989. Other high-profile deals: Safeway, Primedia, Duracell. Last July bought Toys "R" Us for $6.6 billion with Bain Capital and Steven Roth's (see) Vornado Realty; acquired SunGard Data Systems for $10.6 billion with Blackstone Group.
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Henry Kravis' high point as king of the leveraged buyout came in 1989, when he paid a staggering $25 billion for RJR Nabisco. But times have changed, and Wall Street is more cautious. Kravis' buyout firm, Kohlberg Kravis Roberts, sold off its final shares of RJR Nabisco at a loss in 1995. Nevertheless, the firm's buyouts continue: Kravis owns K-III Communications, which has been on a feeding frenzy in recent years, buying everything from magazines like New Woman and Seventeen to the controversial in-school TV network, Channel One.
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[C]ousins partnered with fellow Bear Stearns mentor Jerome Kohlberg to form leveraged buyout firm Kohlberg Kravis Roberts 1976. Bought underperforming companies using junk bonds, reworked balance sheet, sold for profit. Kohlberg exited in 1987. "Barbarians at the gate" best known for $25 billion RJR Nabisco buyout 1989. Recent spending spree: PanAmSat (satellites), Sealy Mattress, Auto-Teile-Unger (German auto parts). Also sprucing up Primedia: sold off moneylosing New York and Seventeen magazines; developing TV shows to boost Hot Rod, Motor Trend brands.
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One of the principals of Kohlberg Kravis Roberts & Co., which pioneered the leveraged buy-out, which uses debt to take control of companies from shareholders. Kravis and his company are known for the $25 billion leveraged buyout of RJR Nabisco in the late 1980s, which was the largest U.S. takeover up to that time.
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