Abstract
This chapter discusses the acquisition of RJR Nabisco in 1998 as a real-life example of valuation. The chapter presents several projections that were made for RJR Nabisco. RJR Nabisco started its business in 1875 as a tobacco company. The management group's strategy was to sell off all the food businesses and keep the tobacco business. The valuations of the management group's strategy include the equity, the preferred stock, and the convertible preferred stock. The valuation of the strategy of the Kohlberg, Kravis, Roberts, & Co. (KKR) assumes that the convertible debt is converted in 1993 and values jointly the common stock and the convertible debt. According to the given valuations, the value of all company's liabilities with the management group's strategy is $30.038 billion, but according to the KKR strategy, it is $29.832 billion. However the returns for buyer firms' shareholders are essentially zero.
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