RJR Nabisco

Definition

RJR Nabisco is a multinational corporation formed in 1985 through the merger of R.J. Reynolds Tobacco Company and Nabisco, Inc., which was known for its production of snack foods. This merger became one of the most notable events during the mergers and acquisitions wave of the 1980s, reflecting the aggressive corporate strategies of that era and the growing trend of consolidation in American business.

5 Must Know Facts For Your Next Test

1. The RJR Nabisco merger was valued at $25 billion, making it one of the largest mergers in history at the time.
2. The acquisition was famously chronicled in the book 'Barbarians at the Gate,' which detailed the intense bidding war between various private equity firms to acquire RJR Nabisco.
3. Following its formation, RJR Nabisco struggled with significant debt from the leveraged buyout, impacting its financial performance throughout the 1990s.
4. The merger showcased the shift towards financial engineering in corporate strategy, where companies focused on restructuring and leveraging assets for profit.
5. RJR Nabisco eventually split into two separate companies in 1999, with R.J. Reynolds focusing on tobacco and Nabisco concentrating on food products.

Review Questions

• How did the RJR Nabisco merger exemplify the trends of corporate strategy during the mergers and acquisitions wave of the 1980s?
  • The RJR Nabisco merger exemplified the aggressive corporate strategies that defined the mergers and acquisitions wave of the 1980s through its massive scale and high-profile nature. It highlighted how companies were increasingly seeking consolidation to enhance market share and financial power. Additionally, it set a precedent for future leveraged buyouts by demonstrating both the potential rewards and risks involved in such high-stakes transactions.
• What role did leveraged buyouts play in shaping the corporate landscape following the creation of RJR Nabisco?
  • Leveraged buyouts played a pivotal role in reshaping the corporate landscape after RJR Nabisco was formed by illustrating how companies could be acquired with substantial debt. This method became popular among private equity firms looking to maximize returns on investment while restructuring acquired companies. The aftermath of such buyouts led to increased scrutiny regarding financial practices and corporate governance, especially given RJR Nabisco's struggles with debt after its formation.
• Evaluate the long-term impacts of the RJR Nabisco merger on both its parent companies and the broader business environment.
  • The long-term impacts of the RJR Nabisco merger on its parent companies included significant financial strain due to debt from the leveraged buyout, which ultimately led to their separation in 1999. The merger influenced the broader business environment by showcasing both the potential for rapid expansion through mergers as well as the vulnerabilities associated with high leverage. It prompted other corporations to rethink their acquisition strategies and highlighted the need for sustainable financial practices, setting new standards for future mergers and acquisitions.

Related terms

Leveraged Buyout (LBO): A financial transaction where a company is purchased using a significant amount of borrowed money, often secured by the company's assets.

Hostile Takeover: A type of acquisition where a company attempts to take control of another company against the wishes of the target company's management.

Merger: The combining of two companies into a single entity, usually to achieve greater efficiency, market share, or financial strength.