PM History/2 - Legacy Tobacco Documents Library

PM history/45
publication as they may concern policies or social issues
the opti.mal move "for all concerned"//But that's the £irst round of reaction
. . .the ~nd a~kc wti,a . is h,- ohn on a& Co . can't do now at RJR_
$h~ the '1 the bu out by wa o~ econom &-
. . . ."
--ARE PM & RJR PUTTING STOCKHOLDERS FIRST?, BW 11-7-88z Within a
week, the two co .s chose diametricall o osed cou of ctio . . .at
first Wall St went w/RJ° a s oc rooped 5 7/ reflecting view that
the acquisition didn't represent shareholder enhancement, whereas RJR
stock rocketed 21 3/8 to 774, then another 7g when KKR got into it . . .
RJR's said to be "the re£erred a roach" by a former chief economist
for t e SMC sr„t s ri~ht to ~out the monev immediately_into shareholders'
ands -- WHEREAS PM SHAREHOLDERS WILL HAVE TO WAIT A PAYOF
since big acquisitions, to judge by history, aren't likely to generate
efficiencies & innovation, notes Harvard's economist ROBT REICHz "It
will just create a layer of bureaucracy & further concentrate the food
processing industry" . . .Hard for RJR shareholders to be upset w/deal tha_t
makes them 60°% richer overni~h_t vs . PM's strategy raises question if i .t's
?~szv b-ne-e,+G -F,~r„r, a~ -1 „ be snread among shareholders
urithin cur . .in short, RJohnson hasn't exp n~ h~
wan s to take co . -crivate "though it's hard to believe personal profit
isn T a i'6 g part of the answer"//both co s(1) COULD MAKE BIGGER ~
PAYMENTS TO SHARFHO'r•DF.RS since core biz is declining & doesn't require
muc additional capital investment . . .each sez it's naving out enouah at
1t69 of EPS, yet those are ower ro ortion t bein aid b BiTM '`~,
AT&T Me,-c>r w~M-~-#-~#*### 2 BOTH COULD HAVE BOUGHT BACK , more
aggressively than they've one o a et Reich says under capitalis
system, "if you make a lot of money, yr shareholders should share in
that directly, rather than indirectly thru a takeover or an LBO"*****but
then you've killed the goose that laid the golden egg, sez RK//this step
viewed as unfashionable in the Age of the Megadeal -- or "PERHAPS IT'S
BECAUSE PAYING OUT HIGHER DIVIDENDS OR BUYING BACK STOCK WON'T ECE
~ STATUS OF MANAGEMENT . With a big takeover behind him, ~Iaxwell wzll
presi e over a larger co . w/more clout and -- most likely -- more pay .
And Johnson will get his payout more directly -- in cold cash -- & probably
more quickly"///WHO WINS IN THE HUGEST DEALS? Fortune 11-21-88 on
same subjectz Kraft d said it would s end $14 billion to ' 's
billion a eove M A~R .rrz t,ad faced IDENTICAL PROBLEM : they
couldn't get public to bid up the price of their stock to the levels
normally accorded companies as lushly profitable as theirs*******the
buy-back programs didn't have much effect in this regard//exces H
011 here defined as monev left over- _aft-er taxes . capital spen
idends & interes ts
tob . co .s
hat can reinves muc
~
-! he soT _o
f some usinesses a R ~ to a~o~od co . .~ &
w/Zitigation problems i- n- tob . on wane & "smokeless" cig ready for mkt,
RJR in better shape on cash flow than in a long while . . .LBO DEFINEDz :
to bu a co, w/borrowed funds often using the co .'s assets as collateral ;
a oes o in e w i e-ora.neina usu ~oai y se ix
off nieces of the one,-a t, on, ,,' THE OPE ATIN - AC . l .~ _-_ _=0R"G FROM
MAKING THE EXISTING MANAGEMENT INTO OWNER-MGRS," & pressure to generate
cash flow means the ~iz mus e made o operate more ef£icientlv, &
it usually is, albeit w ayof£s & other orms of cos~tta.ng, the owners
hope eventually to make big profits, sometimes by selling the biz back
to the public . . . BUTz during the transitional period of paying off the
buyout, the concrete of equity has been replaced by the paperboard of
debt, & "A HOUSE MAY NOT LAST THRU THE NEXT STORM"#*~###//ONE SURE
LOSER : THE FED GOV as tax i wa. droo to z ro for both co-T"'ich
paid a£t 20 milion in '87 . .,ALSO, LBO HURTS CAPITAL INVFS T-
~ P~NT since mone is needed to meet debt so e flciency of US
in us y nega ive y a f ec ed "FOR HAREHOLDERS ONE THING IS CLEAR : You
would have been better off to own RJR than Philip Morris," & if you had
u
invested the same amt in both shares 10 yrs ago, Johnson's move has
suddenly made yr stake in RJR worth nearly 4-0% more than yr piece of
PM + in RJR bu out shareholders WILL CASH OUT & then can make their
own decis ons about abeut diversifvinF t eir ris s w ereas HARE-
H DERS WILL TILL HAVE HAMISH Pd1AYGTELL DOING IT FOR THEM" (RK : exactly --
& they probably can't find any better investment
T
e becom ~ n c1 s
ey
in their bas ic b ss !IANY SECURITY ~
AN G ' RAT N "It's the wearing of~e ~
purple" -- as in i erial -- sez V1m Frankenho 0 om ine Capital ~
Management, inves~~irm, "It's strictly A DEFENSIVE MOVE & NOT TO -P
THE BENEFIT OF THE SHAREHOLDERS . Kraft has good quality earnings, BUT ~
SO DO TREASURY BILIS" .L .even at the original offering price, PM will p
earn only about 8% on its money BEFORE INTEREST & TAXES, so not wise
investment//RJR HAD TV~LC) BIG PROffi n Johnson came 'nz it had diversi .£~c
in o consumer ro uc s but w o a coherent strate~v . so Ross_s answers
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