Barbarians at the Gate

Bryan Burrough and John Helyar covered the 1988 fight for RJR Nabisco for the Wall Street Journal, and their reporting won a 1989 Gerald Loeb Award. The contest, which began when chief executive F. Ross Johnson proposed to take the company private and ended with KKR winning what was then the largest leveraged buyout in history, drew in nearly every major Wall Street firm. For the book they interviewed most of the principals, which is why it reads like a series of overheard boardroom conversations. Burrough went on to Vanity Fair and later books such as The Big Rich; Helyar wrote Lords of the Realm.

The book is the standard against which deal narratives are judged, and HBO turned it into a 1993 film starring James Garner. It shaped the public image of 1980s excess, from RJR's corporate jets to Johnson's golden parachute, and the title comes from Ted Forstmann's attack on junk-bond financing. Readers have noted that it is long, dense with negotiation detail, and says little about why the market valued RJR so cheaply or what Johnson planned to do with the company. The 2008 edition adds a 20th-anniversary afterword on what happened next.

Anyone headed into M&A, leveraged finance or private equity should read it early.

1. A management buyout puts the company in play. Johnson's low opening bid invited rivals and turned a private deal into a public auction he could not control.
2. The highest number does not always win. The board took KKR's lower bid partly because of its certainty and terms, and to avoid rewarding management's conflicted offer.
3. Conflicts of interest are a deal risk. Once the size of the management group's potential payoff became public, it damaged Johnson with the board and the press.
4. Leverage needs cash flow to serve it. The heavy debt KKR took on forced asset sales and limited what the company could do for years.
5. Egos drive pricing. Pride and rivalry among Kravis, Johnson, Shearson's Peter Cohen and their advisers pushed the price far above where the bidding began.

The book runs chronologically, from the people and companies to the auction and its aftermath.

1. Johnson's rise. The authors trace Ross Johnson's career from Canada through Standard Brands and Nabisco to the 1985 merger with R.J. Reynolds, and his management style of perks, jets and constant dealmaking.
2. The buyout business. They explain how KKR built the leveraged buyout into an industry, and why tobacco cash flows made RJR Nabisco an obvious target as its stock lagged.
3. The opening bid. Johnson and Shearson Lehman Hutton announce a $75-a-share offer in October 1988, and Kravis, angry at being shut out, answers with a $90 tender offer.
4. The auction. Over six weeks the board's special committee runs a formal process. Forstmann Little and a First Boston group enter and drop out, the terms of Johnson's management agreement leak to the press, and the contest turns into a public test of greed and ego.
5. The final round. Bids come down to KKR at $109 and the management group at $112; the committee picks KKR, citing the certainty of its offer.
6. Aftermath. Johnson leaves with his golden parachute, Louis Gerstner takes over, and the company begins selling assets to service its debt; the anniversary afterword follows the story forward.

One of the finest, most compelling accounts of what happened to corporate America and Wall Street in the 1980’s.” —New York Times Book Review A #1 New York Times bestseller and arguably the best business narrative ever written, Barbarians at the Gate is the classic account of the fall of RJR Nabisco. An enduring masterpiece of investigative journalism by Bryan Burrough and John Helyar, it includes a new afterword by the authors that brings this remarkable story of greed and double-dealings up to date twenty years after the famed deal. The Los Angeles Times calls Barbarians at the Gate, Superlative.” The Chicago Tribune raves, It’s hard to imagine a better story...and it’s hard to imagine a better account.” And in an era of spectacular business crashes and federal bailouts, it still stands as a valuable cautionary tale that must be heeded.