Finance
by Bryan Burrough and John Helyar
How did a boss lose his company?
In October 1988 the boss of RJR Nabisco, maker of Oreos and Winston cigarettes, offered to buy his own company. Six weeks later it had been sold to someone else for about $25 billion, the biggest takeover in history at the time. Bryan Burrough and John Helyar tell how.
Hear a sample · read by Laura
In a leveraged buyout, a small group buys a company mostly with borrowed money, then uses the company's own cash to pay the debt down. The interest is tax-deductible, and if it works the buyers keep the gains. Firms like KKR had turned this into an industry.
F. Ross Johnson, RJR's chief executive, loved the perks, from a fleet of corporate jets to famous sportsmen on the payroll. Frustrated by a flat share price, he proposed buying the company with Shearson Lehman Hutton at $75 a share. The low price told everyone RJR was a bargain.
Henry Kravis of KKR felt Johnson had gone behind his back, and within days bid $90 a share. Ted Forstmann, who despised junk bonds, called them 'wampum'. Burrough and Helyar show pride and rivalry pushing the price up as hard as any spreadsheet.
Johnson's group had agreed terms that could make him and a handful of executives enormously rich. When the details leaked, Time put him on its cover under the headline 'A Game of Greed'. The public, and RJR's own board, turned against him.
The bid
In 1988 RJR Nabisco's boss, Ross Johnson, tried to buy his own company with borrowed money.
Perks
Johnson spent freely on jets and perks, treating shareholders' money as if it were his own.
Rivals
His low offer invited rivals. Henry Kravis of KKR joined in and a bidding war began.
Greed on show
When word got out how much Johnson's team stood to make, public opinion turned against him.
The winner
KKR won with about $25 billion, most of it borrowed, the biggest buyout the world had seen.
A story from the book
In the final round Johnson's group offered $112 a share and KKR offered $109. The board's special committee chose KKR anyway. It judged the two offers close in value and preferred KKR's terms, which left more of the company in shareholders' hands.
Hot take · true or myth?
RJR's smokeless cigarette, Premier, was a flop.
True. Premier cost a fortune to develop and smokers disliked the taste. Its failure helped keep RJR's share price flat, one reason Johnson thought a buyout made sense.
One thing to try
Pick a company whose shares you own, directly or through a pension, and find the pay section of its annual report. Look for what the bosses would receive if the company were sold. Johnson's deal only became public because it leaked.
Knotd has the key ideas from 250+ non-fiction books, each in a few minutes, in plain words. Barbarians at the Gate comes with a Hot Take round to make it stick.
Get the whole book on KnotdOpen in the appHow did a boss lose his company? In October 1988 the boss of RJR Nabisco, maker of Oreos and Winston cigarettes, offered to buy his own company. Six weeks later it had been sold to someone else for about $25 billion, the biggest takeover in history at the time. Bryan Burrough and John Helyar tell how.
What a leveraged buyout is; Ross Johnson's opening bid; Egos at the table; A Game of Greed.
Pick a company whose shares you own, directly or through a pension, and find the pay section of its annual report. Look for what the bosses would receive if the company were sold. Johnson's deal only became public because it leaked.
Yes. Knotd has the key ideas from Barbarians at the Gate in a few minutes, in plain words, plus a Hot Take round to test them. It's one of 250+ non-fiction books in the app.
