An In-Depth Introduction to the World’s Top Private Equity (PE) Firms and Analysis of Their Specific Investment Strategies

Executing a sky-high hostile takeover at low cost — The RJR Nabisco Acquisition Although KKR boasts countless outstanding achievements, it was the acquisition of RJR Nabisco—the largest leveraged buyout in U.S. history (still ranking first in nominal terms, even after adjusting for inflation)—that truly catapulted KKR into global fame. Dubbed the “Deal of the Century,” this hostile leveraged buyout severely weakened the once-dominant RJR Nabisco, from which the company has yet to fully recover. At the time, RJR Nabisco ranked second only to Philip Morris among U.S. tobacco producers; it still generated $1 billion in annual cash profits. Yet its CEO, Ross Johnson, collected exorbitant executive compensation while paying little heed to shareholder interests. On October 19, 1988, backed by investment banks including American Express, Shearson Lehman Hutton, and Salomon Brothers, Johnson proposed acquiring the company at $75 per share. However, shareholders representing Nabisco’s interests clashed with Johnson and delayed voting on his proposal. Soon thereafter, KKR—the Wall Street “King of Leveraged Buyouts”—entered the bidding war upon hearing rumors. On February 9, 1989, KKR completed the acquisition of RJR Nabisco for a staggering $25 billion. Over 200 lawyers and bankers attended the signing ceremony. Major Wall Street investment banks—including Merrill Lynch and Morgan Stanley—as well as “junk bond king” Michael Milken and his firm Drexel Burnham Lambert, all participated. Of the acquisition financing: $14.5 billion came from a syndicated bank loan; $5 billion in bridge loans were provided by Drexel Burnham Lambert and Merrill Lynch; KKR itself contributed $2 billion (of which $1.5 billion served as equity), plus $4.1 billion in preferred stock and $1.8 billion in convertible bonds—and assumed RJR’s $4.8 billion in existing debt. Throughout the deal, KKR’s out-of-pocket cost was remarkably low. Because the transaction relied heavily on junk bond issuance—with commitments to repay debt via future asset sales—the total funding exceeded $25 billion, yet KKR’s actual cash contribution amounted to less than $2 billion. However, the record-breaking price tag did not yield ideal results. Following the acquisition, RJR Nabisco failed to rebound and instead entered a steep decline. In the first half of 2003, RJR’s sales dropped 18% year-on-year to just $2.6 billion, while operating profit plunged 59% to $275 million. In 2005, KKR sold all its remaining shares in RJR Nabisco, achieving only modest returns. Collaborating with Management for Mutual Gain — The Duracell Acquisition Compared to the spectacularly launched but ultimately underwhelming “Deal of the Century” involving RJR, the Duracell acquisition—completed just six months earlier—was comparatively uneventful in execution, yet stands as KKR’s most successful case.

Classic Cases of KKR, the 'King of M&A'

However, the record-breaking price tag did not yield ideal results. Following the acquisition, RJR Nabisco failed to rebound and instead entered a steep decline. In the first half of 2003, RJR’s sales dropped 18% year-on-year to just $2.6 billion, while operating profit plunged 59% to $275 million. In 2005, KKR sold all its remaining shares in RJR Nabisco, achieving only modest returns. Collaborating with Management for Mutual Gain The Duracell Acquisition Compared to the spectacularly launched but ultimately underwhelming “Deal of the Century” involving RJR, the Duracell acquisition—completed just six months earlier—was comparatively uneventful in execution, yet stands as KKR’s most successful case. Even prior to the acquisition, Duracell’s business performance was outstanding, and its management team highly capable. Its sole growth constraint was scale—it operated merely as a division within food-processing giant Kraft, and its operations bore no strategic synergy with Kraft’s core business. In late 1987, Duracell’s CEO Bob Kind learned that Kraft intended to sell the unit to strategic buyers such as Kodak and Gillette. To retain control over their company’s destiny, he consulted KKR and other potential financial buyers about the feasibility of a management buyout (MBO). After a five-month competitive bidding process, KKR secured Duracell in May 1988. At the time, analysts widely estimated Duracell’s total value at no more than $1.2 billion—but KKR offered $1.8 billion, at least $500 million above competing bids. KKR’s acquisition structure also strongly benefited Duracell’s management. Thirty-five senior executives collectively invested $6.3 million to purchase shares (with Bob Kind contributing $1 million), and KKR granted five stock options for every share purchased—giving management an aggregate 9.85% equity stake in the company. Duracell’s management team lived up to KKR’s expectations. In the first year post-acquisition, the company’s cash flow surged by 50%, then grew annually at 17%. This rapid cash-flow growth enabled swift repayment of acquisition-related debt. KKR also decisively supported management’s expansion ambitions—raising CEO Kind’s capital expenditure authority from $250,000 pre-acquisition to $5 million, and granting him full discretion over subordinate managers’ compensation. In May 1991, Duracell conducted an IPO, issuing 34.5 million shares at $15 per share. Following the listing, KKR recouped its entire $350 million equity investment by selling a portion of its stake. Duracell subsequently executed two secondary offerings and two dividend distributions. By 1996, KKR’s total returns from the Duracell investment reached $1.3 billion—sufficient to repay the $600 million in acquisition debt. In September 1996, KKR sold Duracell to Gillette via a stock swap. By September 2000, KKR and its affiliated investors had received $2.3 billion in cash and $1.5 billion in stock proceeds from the Duracell transaction. Duracell’s management also reaped substantial rewards: by the time of the 1996 resale, the original 35 executives saw the value of their holdings increase elevenfold.

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Diamondback Energy and KKR agreed to acquire Five Point Infrastructure's 70% stake in Deep Blue Midland Basin for an estimated $2.1 billion. The transaction enhances water sourcing and recycling capabilities for Permian Basin oil operations.

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