Barbarians at the Gate: The Fall of RJR Nabisco

Burrough and Helyar, Wall Street Journal reporters, reconstruct the 1988 leveraged buyout of RJR Nabisco, at twenty-five billion dollars the largest takeover to that date. The book is built from extensive interviews with participants on every side and reads as narrative.

The sequence begins with chief executive Ross Johnson's proposal to take the company private at seventy-five dollars a share, which he made partly because the market would not value the tobacco business separately from the food business. His management group underestimated the response. Kohlberg Kravis Roberts entered a competing bid, then Forstmann Little, then First Boston with a tax-driven structure, and the auction ran the price to one hundred and nine dollars a share.

The most instructive material concerns the mechanics: how the special committee ran the auction, how the financing was assembled with bridge loans and junk bonds, how the management agreement Johnson negotiated for himself became public and destroyed his position, and how KKR won with a bid that was not the highest on a simple cash basis but was judged superior on the securities included. The book documents the fee structure across banks, lawyers and advisers, which totalled over a billion dollars.

Burrough and Helyar report rather than analyse, and readers wanting an assessment of whether leveraged buyouts create value will not find one. The reconstructed dialogue is a method some object to. The subsequent performance of RJR Nabisco under the debt load is covered briefly, and the company underperformed badly. It remains the standard account of how a large contested takeover actually proceeds and of the incentives acting on each party.