Buddy, Can You Spare a Billion?

A fresh burst of takeover cross fire rattled through corporate boardrooms last week as acquirers battled for control of companies that make everything from bath towels (West Point Pepperell) to cake mixes (Pillsbury). Costliest of all was the struggle for RJR Nabisco (1987 revenues: $16 billion), whose price tag set a record with each new offer. Top RJR Nabisco executives, backed by Wall Street’s Shearson Lehman Hutton and Salomon Brothers, raised their bid from $17.6 billion to $21 billion, topping the rival offer of $20.6 billion from Kohlberg Kravis Roberts, the high-flying leveraged-buyout firm. Now the two sides may be getting new competition. At week’s end Forstmann Little, a Manhattan investment firm, said it might make an even higher bid for RJR Nabisco, backed by Procter & Gamble and other large corporate investors.

Whichever bid ultimately succeeds, the RJR Nabisco buyout may be too big for one team to handle. Hoping to join forces, KKR and the company’s managers met around the clock in Manhattan. A major dispute was resolved when RJR Nabisco chief executive Ross Johnson agreed to share control of the company with KKR.

Talks then stalled over KKR’s insistence that Drexel Burnham Lambert manage the buyout’s junk-bond financing. KKR contends that only Drexel has the savvy to sell the record $5 billion in high-yield bonds that is needed. But RJR Nabisco’s managers are concerned that the buyout could be jeopardized if Drexel and Michael Milken, its junk-bond wizard, are indicted for securities fraud, which is expected to occur soon.

While the suitors struggled to come to terms, a sudden truce was called in another huge takeover fight when Kraft (’87 revenues: $10 billion) agreed to be acquired by Philip Morris ($28 billion). Hamish Maxwell, chairman of Philip Morris, said he will not have to sell off chunks of Kraft to finance the buyout. Said he: “For the vast majority of Kraft workers, this won’t have any impact at all.” The Philip Morris coup was an unusually smooth resolution. Another KKR fight fizzled last week when the Macmillan publishing firm accepted a $2.5 billion offer from British financier and press lord Robert Maxwell. In Georgia, Joseph Lanier, chairman of West Point Pepperell, which makes Arrow shirts and Martex towels, was determined to beat back a bid for his company from Chicago investor William Farley, whose company makes Fruit of the Loom underwear. Said Lanier: “We intend to whip him, and are going to fight him until hell freezes over.”

The feeding frenzy is making some financial experts nervous about the growing degree of corporate debt. In a whimsical proposal for the biggest takeover of all, James Grant, editor of Grant’s Interest Rate Observer, has outlined a strategy for a $115 billion leveraged buyout of IBM. But could Big Blue meet payments on the $97 billion in new borrowing? No problem, said Grant. The computer giant could manage if it slashed R. and D. 80% and scrapped most of its new products. The real winners: bankers and lawyers, who would make a quick $4.9 billion in fees on the deal.