In 1988, the private equity firm of Kohlberg Kravis Roberts was on the prowl to take over a company after making hundreds of millions of post-tax dollars quickly from the leveraged buyout of Reynolds Tobacco. It wanted to buy The Kroger Company, a large American grocer that looked small enough to be taken over by activist investors. Because KKR wanted to oust the then-existing management at Kroger, the management team sought a creative strategy to keep out KKR so that they could keep their jobs. At the time, KKR did not engage in the golden-parachute strategy of paying off executives handsomely to relinquish control of the company and go away.
In one of the riskiest financial engineering moves in corporate American history, Kroger took on $4 billion in debt to issue a $48.50 special dividend to shareholders (it was set to come in the form of an August 1988 $40 … Read the rest of this article!