nabisco_sol v0.1.pdf

PRE BID

Assumptions: Unlevered Equity Beta = Risk Free Rate = Risk Premium =

0.76 approx 9% 8%

1989 Beginning of year values Assumed debt 5204 Mkt Value of equity 12795 Value of RJR Nabisco 17999

Tax Rate Debt Beta

34% 0

1990

1991

1992

1993

1994

1995

1996

1997

1998

4894 14929 19823

4519 17372 21891

3798 20168 23966

2982 23355 26337

2582 26990 29572

1854 31156 33010

0 35920 35920

0 41327 41327

0 47548 47548

0.96

0.92

0.89

0.85

0.82

0.80

0.79

0.76

0.76

0.76

Cost of equity

16.7%

16.4%

16.1%

15.8%

15.6%

15.4%

15.3%

15.1%

15.1%

15.1%

WACC

13.6%

13.8%

14.0%

14.2%

14.5%

14.6%

14.8%

15.1%

15.1%

15.1%

Equity beta

Equity Beta Asset Beta Debt Equity

1986 1.24 0.97 5124 12332.2

1987 Average 0.67 0.54 0.76 4057 11133

1989 1 517 582 384

1990 2 948 662 437

1991 3 1399 693 457

1992 4 2073 690 455

1993 5 2551 658 434

1994 6 2869 594 392

1995 7 3253 458 302

1996 8 3617 410 271

1997 9 4075 259 171

1998 10 4589 -21 -14

901

1385

1856

2528

2985

3261

3555

3888

4246

4575

13.6%

13.8%

14.0%

14.2%

14.5%

14.6%

14.8%

15.1%

15.1%

15.1%

PVIF

0.88

0.77

0.68

0.59

0.51

0.44

0.38

0.33

0.28

0.25

Present Value

793

1070

1253

1484

1519

1439

1356

1266

1202

1126

Valuation Growth in CF after 98 (%) PV of CF 1989-98 PV of CV

0 12508 7478

2 12508 8797

4 12508 10592

Less: Assumed debt

19986 5204

21305 5204

23100 5204

Net value

14782

16101

17896

Per share

65

70

78

Period Cash flow available Interest After tax interest Cash flow WACC

assuming 229 mi shares outstanding

MANAGEMENT GROUP

Assumptions: Unlevered Equity Beta = Risk Free Rate = Risk Premium =

Bank debt After tax Ass. Debt After tax

0.76 9% 8%

0.0594 0.0594

Sub. Debt beta after tax P Stock

0.25 0.0726 0.0726

1989 Beginning of year values Assumed debt 5204 Bank debt 15000 Subordinated debt 3000

1990

1991

1992

1993

1994

1995

1996

1997

1998

4894 3292 3000

4519 3075 3000

3798 2877 3000

2982 2411 3000

2582 1217 3000

1854 0 3000

0 0 2510

0 0 0

0 0 0

Preferred stock Convertible preferred

1374 916

1632 1035

1938 1229

2303 1460

2376 1735

3250 2061

3861 2448

4587 2909

5162 3455

2801 4105

MV of Equity

2500

3895

5034

6342

7834

9512

11428

13594

16040

18799

27994

17748

18795

19780

20338

21622

22591

23600

24657

25705

5.85

2.53

2.12

1.81

1.55

1.39

1.24

1.12

1.02

0.94

Cost of equity

55.8%

29.3%

26.0%

23.5%

21.4%

20.1%

19.0%

18.0%

17.2%

16.5%

WACC

10.6%

11.5%

11.7%

12.0%

12.4%

12.7%

13.1%

13.4%

13.7%

14.0%

Value of RJR Nabisco Equity beta

Period Cash flow available Interest After tax interest

1989 1 12018 2792 1843

1990 2 593 1353 893

1991 3 919 1286 849

1992 4 1282 1183 781

1993 5 1594 1037 684

1994 6 1946 850 561

1995 7 2344 624 412

1996 8 2797 351 232

1997 9 3332 0 0

1998 10 3666 0 0

Cash flow

13861

1486

1768

2063

2278

2507

2756

3029

3332

3666

WACC

10.6%

11.5%

11.7%

12.0%

12.4%

12.7%

13.1%

13.4%

13.7%

14.0%

0.90

0.80

0.72

0.63

0.56

0.49

0.42

0.36

0.31

0.27

12528

1196

1267

1310

1272

1224

1166

1104

1047

986

Valuation Growth in CF after 98 (%) PV of CF 1989-98 PV of CV

0 23100 7027

2 23038 8359

4 23038 10222

Less: Assumed debt

30127 5204

31397 5204

33259 5204

Net value

24923

26193

28055

Per share

109

114

123

PVIF Present Value

KKR

Assumptions: Unlevered Equity Beta = Risk Free Rate = Risk Premium = 1989 Beginning of year values Assumed debt 5204 Bank debt 12380 Sr. Subordinated debt 3500

1990

1991

1992

1993

Sub. Debt beta after tax P Stock Conv. Debt 1994 1995

4894 8958 3500

4519 5812 3500

3798 5119 3500

2982 4195 3500

2582 2612 3500

2182 629 3500

0 0 3479

0 0 149

0 0 0

Converting debt Preferred stock

1374 2519

1580 2896

1817 3331

2129 3958

0 4792

0 5586

0 6636

0 7883

0 9365

0 7320

MV of Equity

1500

2724

4006

5367

6914

8573

10433

12521

14860

17477

26477

24552

22985

23871

22383

22853

23380

23883

24374

24797

9.07

4.76

3.12

2.48

1.87

1.59

1.38

1.21

1.08

0.97

Cost of equity

81.6%

47.1%

34.0%

28.8%

24.0%

21.7%

20.0%

18.7%

17.6%

16.7%

WACC

10.6%

10.9%

11.3%

11.6%

12.0%

12.4%

12.8%

13.2%

13.6%

13.9%

Value of RJR Nabisco Equity beta

Bank debt After tax Ass. Debt After tax

0.76 9% 8%

0.0594 0.0594

0.25 0.0726 0.0726 0.0726 1996

1997

1998

Period Cash flow available Interest Non Cash Interest Effective interest After tax interest

1989 1 3732 2754 206 2548 1682

1990 2 3521 2341 237 2104 1389

1991 3 1414 1997 312 1685 1112

1992 4 1740 1888 366 1522 1005

1993 5 1983 1321 0 1321 872

1994 6 2383 1088 0 1088 718

1995 7 2832 806 0 806 532

1996 8 3330 487 0 487 321

1997 9 3956 21 0 21 14

1998 10 4319 0 0 0 0

Cash flow

5414

4910

2526

2745

2855

3101

3364

3651

3970

4319

10.6%

10.9%

11.3%

11.6%

12.0%

12.4%

12.8%

13.2%

13.6%

13.9%

PVIF

0.90

0.81

0.72

0.64

0.57

0.50

0.43

0.37

0.32

0.27

Present Value

4895

3990

1831

1768

1620

1540

1449

1350

1263

1172

Valuation Growth in CF after 98 (%) PV of CF 1989-98 PV of CV

0 20877 8413

2 20594 10019

4 20594 12273

Less: Assumed debt

29289 5204

30613 5204

32867 5204

Net value

24085

25409

27663

Per share

105

111

121

WACC

VALUE GAINS

1989 Period 1 Interest Tax Shields (interest * tax rate) Pre-bid 197.88 Management Group 949.28 KKR Strategy 936.36

1990 2

1991 3

1992 4

1993 5

1994 6

1995 7

1996 8

1997 9

1998 Terminal Value PV 10

225.08 460.02 795.94

235.62 437.24 678.98

234.6 402.22 641.92

223.72 352.58 449.14

201.96 289 369.92

155.72 212.16 274.04

139.4 119.34 165.58

88.06 0 7.14

-7.14 0 0

0 0 0

$951 $2,100 $2,758

Planned Capex Pre-bid 1142 Management Group 432 KKR Strategy 774

1708 381 556

1462 380 555

1345 389 572

930 396 586

738 402 598

735 412 618

735 422 638

735 432 658

735 442 678

4836 2908 4461

$6,841 $2,722 $4,191

Net proceeds from asset sales Pre-bid 0 0 Management Group 12680 0 KKR Strategy 3500 2700

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

$0 $11,007 $5,073

After Tax operating cash flows Pre-bid 2720 2993 Management Group 2042 2299 KKR Strategy 3048 3121

3352 2583 3414

3632 2891 3639

3924 3118 3895

4228 3358 4162

4560 3620 4453

4925 3910 4771

5326 4229 5120

5761 4580 5500

37900 30129 36186

$27,992 $22,030 $27,750

Interet tax shields Planned capex Asset sales AT Optg Cash flows Total

KKR-Pre 1807 -2650 5073 -243 9287

MG-Pre 1149 -4119 11007 -5963 10312

1989 Period 1 Operating Profits Pre-bid 2898 Management Group 1917 KKR Strategy 2862 Depreciation Pre-bid 807 Management Group 777 KKR Strategy 1159

1990 2

1991 3

1992 4

1993 5

1994 6

1995 7

1996 8

1997 9

1998 10

3336 2385 3228

3838 2814 3811

4216 3266 4140

4634 3589 4508

5093 3945 4906

5596 4337 5341

6149 4768 5815

6756 5243 6335

7424 5766 6902

791 725 991

819 726 899

849 735 907

866 749 920

867 754 924

867 758 928

867 763 933

867 769 939

861 774 945