Academic journal article Journal of Financial Education

Barbarians in the Classroom: The Case of RJR Nabisco

Academic journal article Journal of Financial Education

Barbarians in the Classroom: The Case of RJR Nabisco

Article excerpt

This paper describes how the variety of teaching materials related to the takeover battle for RJR Nabisco, including a Harvard Business School case, a best-selling book, articles in the popular press, and a full length motion picture can be utilized in the classroom to provide students with a multimedia and multidisciplinary perspective on one of the largest leveraged buyouts in history.

INTRODUCTION

Teaching finance and other business disciplines poses the continuous challenge of linking the wide variety oftheories, conceptual models, and analytical techniques to the actual practice of finance. Many students lack the organizational frame of reference needed to understand and appreciate the relevance and context within which the subject matter applies.

To help students place and finance in its corporate context and gain situational problem formulation skills, many instructors use the case method, either to supplement lectures or as the basis for a separate course devoted entirely to case studies. The benefits of the case method as a pedagogical tool have been described by Banning (2003), Barnes, Christensen, and Hansen (1994), Merry (1967), Roulac (1975), Simon (1979), Springate(l 974), Trahan( 1993) and numerous others. Cases help students develop skills in problem identification, situational analysis, evaluation of alternatives, and decision-making in ways that are difficult to achieve from the lecture method of instruction.

Students find the use of case studies to be an enjoyable and change-of-pace experience and a "real world" approach to understanding and applying the concepts, models, and theories of finance.

The purpose of this paper is to describe a multimedia approach to teaching one particular case study that can significantly enhance an advanced course in corporate finance or mergers and acquisitions - the leveraged buyout of RJR Nabisco. The battle for ownership of RJR Nabisco occurred in 1988. It involved a highly- publicized bidding contest between members of RJRNabisco management and the investment banking firm of Shearson Lehman Hutton (Management Group) and the leveraged buyout firm Kohlberg, Kravis, Roberts & Co. (KKR).

This particular case study provides an excellent teaching opportunity for several reasons:

(1) The leveraged buyout of RJR Nabisco, with a purchase price of about $25 billion, is still one of the largest leveraged buyouts ever.

(2) There are a variety of teaching materials that make the battle for control of RJR Nabisco an excellent case study that can be taught in a variety of ways from a variety of perspectives. These include a Harvard Business School case, RJR Nabisco (289-056), a best-selling book that chronicles the company and bidding contest, Barbarians at the Gate: The Fall of RJR Nabisco by Bryan Burrough and John Helyar (1991), amovie, Barbarians at the Gate (1993), and numerous articles written in the popular press during and after this widely-followed takeover battle. With these materials, students can follow the case from beginning to end and see how it all turned out. Students can learn about the history of RJ Reynolds Tobacco Company from its inception in 1875, to its numerous food company acquisitions in the 1970's and 1980s, its acquisition ofNabisco Brands, Inc. in 1985, the historical takeover battle in 1988, the junk bond crisis in 1990, the law suits ofthe 1990's, the Master Settlement Agreement in 1998, the sale of KKR's last shares in 1995, and returning full circle to its present day status as an independent tobacco company.

(3) It involves a combination of colorful personalities, power, greed, ethics, and egos - a combination guaranteed to capture the interest of finance and business students.

The remainder of this paper describes how this case study and related teaching materials are integrated into the Corporate Mergers, Leveraged Buyouts and Divestitures course at Washington and Lee University (W&L) and previously in Cases in Corporate Finance courses at W&L and Bucknell University. …

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