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Joel Tivin's avatar

The key risk was the Engle lawsuit in Florida. I think the tobacco companies would have had to pay out

about 1.5 trillion. Either they go bankrupt or raise prices so high the mafia takes over the business.

Rjr was interesting because their earnings were penalized by huge goodwill amortization charges.

That's why kkr figured they could afford 29 billion in debt. in 1988. little too much, but warren b bought the bonds later at 75 cents on the dollar. Had to sale , because his shareholders gave him heck on moral grounds.

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Joel Tivin's avatar

I remember that time period. Pm also owned Kraft Foods ( actually also parts of Mondalez) that was spun off plus they owned Miller beer. The food was spun off. they should have never acquired since Ust (chewing tobacco) return was better which did not deworsify. Rjr owned nabisco and Icahn bought a big stake. Less undervalued was Bat which owned Farmers Insurance. Incredible they went down because the company was British and had much less litigation risk.

At the peak of the undervaluation if Mo had announced they were giving away the domestic business in exchange for no litigation the stock would have doubled. That business was worth according to Mr market something like negative 20 billion!

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