Case ID: 289056
Solution ID: 22773
Words: 1407
Price $ 75

RJR Nabisco

Case Solution

Gives students the opportunity to explore issues facing the board of directors in a leveraged buyout. RJR Nabisco is valued under different operating strategies and the source of gains in leveraged buyouts is stressed.

Excel Calculations

Prebid operating strategy, MG operating strategy, KKR operating strategy

 Calculating present value of cash flows 1989-1998

 Calculating terminal value

 Grand NPV

 Calulating Weighted Average Cost of Capital (WACC)

 Calculating Cost of Equity

 Calculating Cost of Debt


 Total Value of RJR Nabisco

 Per share value

Questions Covered

1. What was the value of RJR Nabisco under:

 a) the pre-bid operating strategy?

 b) the Management Group’s operating strategy?

 c) KKR’s operating strategy?

You need to conduct detailed valuation using the information given in the exhibits for each strategy and general information in the case

2. What accounts for any difference in the value of the three  operating plans?

3. Evaluate the Special Committee’s use of an auction of RJR  Nabisco?

4. Which bid should the Special Committee select, if any? What  other actions should the Special Committee take?