The Barbarians Back Away from The Gate; Take 2 Aspirins and Come Back in 76 Years
THE BARBARIANS BACK AWAY FROM THE GATE Five years ago, Kohlberg Kravis Roberts & Co. pulled off the biggest corporate takeover ever, a $25 billion acquisition of RJR Nabisco that symbolized the high-flying, leveraged-buy-out boom of the 1980s. Last week, the New York investment firm in effect told the world that the deal that inspired the bestseller Barbarians at the Gate may have been a big mistake. In a surprise to Wall Street, KKR agreed to acquire struggling Borden Inc. But the transaction is not a straight sale. Instead, KKR plans to give Borden's stockholders $2 billion of RJR Nabisco stock, thus cutting its stake in the big tobacco and food company in half.
Should the deal fall through, KKR will get up to $65 million in cash and still be able to unload $300 million worth of its RJR Nabisco stock. Many analysts expect KKR to sell off big chunks of Borden, which was steadily losing money and was unable to find a buyer until KKR stepped in. Borden's money-losing dairy business, represented for years by the company's Elsie the Cow logo, likely will be offered for sale. But KKR probably will hold on to Borden's grocery business. When it acquired RJR Nabisco in 1989, the investment company paid heavily to get brands like Ritz crackers, Oreo cookies and Lifesavers. In taking over Borden, it is investing much less to pick up such familiar products as Cracker Jack, Wise Potato Chips, ReaLemon lemon juice and Creamette, the nation's top-selling pasta. A FEW OF KKR'S HOLDINGS
Industry 1993 sales Safeway Food retailing $15.2 bil. RJR Nabisco Food, tobacco $15.1 bil. Flagstar Cos. Restaurants $4.0 bil. Stop & Shop Food retailing $3.6 bil. Owens-Illinois Glassmaking $3.5 bil. Fred Meyer Retailing $3.0 bil. Duracell Batteries $1.7 bil. Walter Industries Home building $1.3 bil. AutoZone Auto parts $1.2 bil.
USN&WR--Basic data: Kohlberg Kravis Roberts & Co.
TAKE 2 ASPIRINS AND COME BACK IN 76 YEARS Nearly a century ago, a German chemist was studying an obscure compound called acetylsalicylic acid, prepared from the bark of a willow tree, as an alternative to pain-killers of the day. After successfully trying it on his rheumatic father, Felix Hoffmann urged his employer, Germany's Bayer pharmaceutical firm, to market his remedy and call it aspirin. Soon, Bayer Aspirin was the world's best-selling medicine. Then came World War I. The U.S. government seized Bayer's aspirin business as enemy property in 1918 and auctioned it off to America's Sterling Products. But the German company kept yearning for its old product with its trademark cross. Last week, after years of battling to regain U.S. rights, Bayer AG bought Sterling Winthrop's over-the-counter medicine business, including Bayer Aspirin, for $1 billion.
The deal will double Bayer's North American nonprescription drug business and help the firm consolidate its marketing resources behind a familiar brand name. But much has changed since aspirin's creation. Generic brands have cut deeply into Bayer's lead in the U.S. aspirin market. And aspirin products now account for only 28 percent of sales of over-the-counter analgesics.
This story appears in the September 26, 1994 print edition of U.S. News & World Report.