RJR Nabisco
Case Study
1. The RJR Nabisco Company passed trough some amazing facts of its financial life in the years of operating, starting as a tobacco company in 1875. In order to analyze RJR Nabisco company as a potentially candidate for leverage buyout (LBO) it is important to understand that all firms may be the targets of a leveraged buyout, but because of the importance of debt and the ability of the acquired firm to make regular loan payments after the completion of a leveraged buyout. Some features of potential target firms make for more attractive leverage buyout candidates. For one company to be said that is good candidate for LOB needs to include the following: low existing debt loads, a multi-year history of consistent and reliable cash flows, hard assets (property, equipment, real-estate, inventory) that may be used as collateral for new debt, then the potential for new management to make operational or other improvements to the firm to boost cash flows and temporary market conditions that are depressing current valuation or stock price.
As a percentage of the purchase price for a leverage buyout target, the amount of debt used to finance a transaction varies according to interest rates, the financial condition and history of the acquisition target, market conditions and the willingness of lenders to extend credit to the LBO's financial sponsors and the company to be acquired. Typically the debt portion in our case is ………… As for cash flow we can conclude (Exhibit 4, 1982-1987) that they are consistent and quite reliable. In (Exhibit 3) for the years 1986 and 1987 we have data about its (property……, equipment…….t, real-estate and inventory…..)so it can be considerate as a strength in order to be us ...