Unexpected Riches

Jack Koach, based in London with Tobacco International, describes the reaction that office had to the buyout announcement. It is at one end of the spectrum:

“It was a real shock in London, as it was everywhere in the “Empire.” It was unthinkable; it couldn’t be happening. Our hundred thirteen-year-old company, that everyone believed would go on forever, surely could not disappear! The Londoners all speculated on their personal outcome. They knew that Philip Morris was waiting in the wings in case a breakup of RJR Nabisco provided the rival tobacco company an opportunity to swoop in and get desirable pieces on the cheap. This would have been TI’s worst-case because Philip Morris would not need them to run the international business.

“The TI people had more reason to be concerned than they probably knew. Johnson’s analysis valued TI at $5 billion, well above the general perception of its value. It would have been a choice property to sell if he won the bidding contest, and he had already held preliminary discussions with Philip Morris on that very subject.

“Sometime earlier, Johnson had made the offer/demand to all RJR Nabisco executives to exercise their options for a price in the range of $57 a share, a comfortable gain in a stock selling at about $50, and with seemingly little prospect of a higher price in the near-term. The most financially astute person at TI in London refused to tender his options, advising that Ross Johnson had always made money for his stockholders. Most of the Londoners followed that advice. The stock soared in only six weeks to $109 a share.”

At first, the London group worried about their careers but finally accepted whatever fate might have in store. They realized it was beyond them to control events. Lester Pullen, the CEO, was part of the buyout group. Except for Pullen, to a man, they rooted for anybody but Johnson to win the bidding, although they later had to admit that he had been great for shareholders. Their options now vested, and they could cash them in for an unexpectedly large gain. One man had all his 401k in RJR stock, perhaps less than prudent, but a windfall. At the office one morning, a company officer said, “I made $900,000 last night.” This was based on a single day’s rise in the RJR stock during the bidding. It all seemed unreal.