on February 22, 2004
To start explaining this book you must understand that the book has been written by two investigative reporters, so it reads like a well written novel. In fact with some of these books you must remind yourself that it is not fiction.
The other thing is that the authors emphasize the people and what they think, their motivations, their egos and their vulnerabilities. It is not a financial book. It is more of a novel. When you combine the writing plus with the emphasis on the people you get a best seller - as we have.
Here is the situation. The CEO's of some of these corporations get greedy and decide that making millions per year and having a fleet of their own jets - is not enough. They want to borrow money and buy the whole company. That is what we had here. The CEO Ross Johnson proposes a leveraged buy out (LBO) of RJR-Nabisco, which had previously merged. His idea is to borrow money and buy all the stock. So it is really a story about Ross Johnson and whether or not he could pull of this (theft) purchase from the shareholders by borrowing enough money. He is abetted by bankers and investment people, and they all want a piece of the action and large fees. It is all quite fascinating stuff.
But he hits a snag. The prize is too big and draws other people into the fray.
Like sharks smelling blood in the water he attracts KKR runs by Henry Kravis - a New York based LBO company. It decides it wants to get involved. The book takes us like a suspense novel through various negotiations and heavy duty meetings in Manhattan until it is finally settled. It makes for a fascinating read.
Recently I read another book that I thought was quite different but just excellent. Ross Johnson in the present book RJR-Nabisco was the CEO of a large public company and he became such by working his way up through the ranks. To me a more fascinating book is Losing my Virginity by Richard Branson also at Amazon.com. Branson starts his career by himself selling a magazine as a teenager, starts Virgin Records, takes on and beats back British Airways with Virgin Airways, and does it all with a flair for the dramatic - and often he owns the companies.
Jack in Toronto
on October 8, 2002
This is an amazingly thorough account of the RJR/Nabisco LBO story of the late 80s. It does a good job of noting the influence of junk bonds, the pervasive greed in the culture of wall street, and the complex wranglings associated with a buyout. The book is exceptionally readable.
My main criticisms are (1) it is too thorough: it is easy to tire of the endless discussions-of-only-minor-substance between some of the parties; many of these conversations sound the same and it quickly becomes something one would rather skim over and (2) the book, while providing some basic education on LBOs, doesn't address some of the details as well as it could. For example, there is no detailed explanation of how junk bonds work or what rules goven the ownership of public or private companies. I had to turn elsewhere for such info and I think that the authors could easily complement what they already have with such material.
Nonetheless, if there is one book about Wall St in the mid/late 80s you should read, it should be this one.
This was my second time through one of Wall Street's most amazing stories. It's depiction of the Leveraged Buyout craze of the 1980's is a cautionary tale of greed that remains unheeded. An LBO is a financial transaction and process by which "a small group of senior executives, usually working with a Wall Street partner, proposes to buy its company from public shareholders, using massive amounts of borrowed money". Colorful Ross Johnson from my hometown of Winnipeg headed RJR Nabisco and recklessly sought to unlock the value he believed investors were overlooking in the company. This organization was the 19th largest company at the time with 140,000 employees and a host of impressive brands: Oreos, Ritz crackers, Life Savers, and Winston and Salem cigarettes. The eventual transaction ended up being the largest LBO ever reaching $17 billion in value (and huge heights of controversy).
Johnson could be a fictional invention. His rise in corporate power was built on political manoeuvring, extensive expense accounts, fleets of corporate jets (RJR Nabsico had 36 pilots and 10 planes), hobnobbing, and other excesses that make for entertaining (and these days incomprehensible) reading. His desire to eschew corporate tradition and civility is at odds with a traditional, depression upbringing. But Ross was his own man and showed early signs of being an entrepreneur and dealmaker. He was also big on the social scene being president of his fraternity, varsity basketball player, and a Cadet in Canadian military officer training at the University of Manitoba. The book is replete with examples of Ross' love of partying and the good life. At one time he was a member of over twenty country clubs and always seemed able to hit the links no matter what was going on.
The book reintroduces us to the firms and players that would personify a time when financial black magic took precedent over business basics like valuable products and solid customer service (not much has changed). In it are: Henry Kravis of Kohlberg Kravis; Salomon Brothers; Jim and Linda Robinson; Lazard Freres & Co.; Jeffrey "Mad Dog" Beck; Morgan Stanley; Drexel Burnham Lambert; Forstmann Little; Goldman Sachs; Shearson Lehman; and more. The majority of the book covers the feeding frenzy that ensued once the company was in play. Greed, petty jealousies, tantrums, egos, arrogance and ignorance are all in great supply. I enjoyed the side stories covering Ted Forstmann who hated Kohlberg Kravis and John Greeniaus who was one executive capable of actual management.
Burrough and Helyar place the reader in the boardroom, limo, and bar. The book is so well researched, the narrative so engaging, and the pace so lively that it reads like a novel. It continues to influence financial and business reporting by placing emphasis on the very real human foibles that impact those worlds. It made me a bit of a junkie for similar works as I went on to read others of this genre and era including: Den of Thieves, Predator's Ball, Rainmaker, amongst others.
on July 18, 2005
You may be interested in the book about the murder death of
a former KKR executive (Almost Paradise, by Kieran Crowley, 2005.) It discussed how the corporate raiders like KKR operates:
1. A group of raiders would locate a fat target,
undervalued, according to the stock price. It was best
to win the cooperation of the concern's board members
in advance, for an uncontested buyout.
2. Next the raiders would quickly secure massive
financing from one or more big banks to fund their
buyout offer to the stockholders of the corporation,
who could be expected to agree to sell their shares
for a windfall profit. The raiders inflated their
offers with controversial "junk bonds," which made the
3. Then the raiders would run the company, selling off
assets, divisions, or property, and consolidating
operations to achieve massive profits. That often
meant wholesale layoffs of loyal workers who had been
doing a good job for a profitable firm.
4. At the end of the process, everyone who owned stock
made a nice profit, the bankers made a bigger profit,
and the raiders garnered the lion's share of the
liquidated assets, sometimes obscene amounts of cash
-- all for wringing money out of someone else's
company with other people's money and shaky bonds.
Everybody was happy -- except the workers who got
on August 1, 2003
Inside the high stakes world of high finance, this book superbly portrays the happenings the events that led to the rise and eventual fall of two great American companies, RJR and Nabisco. Along the way, these companies inturn merger with other companies resulting in the cash spinning behemoth that became the prey of many corp finance predators of Wall St.
Both the authors excel at investgative journalism, wherein lies the beauty of this book. What you get from this book is a lucidly writen cases on a multitude of things. The making of the brand RJR Nabisco, from the turn of 20th to 21st century. The rise of the unstoppable buyout machine, KKR, the rise and fall of the leverage buyout (LBO) industry and the rise and fall of one man who spearheaded most of the fall of RJR Nabisco, Ross F Johnson. You end up learning more about many things that you thought were possible and the best part is, the narration style. Its like watching a good Hollywood movie, a fast paced thriller. So once you start the book you never want to put it down. And when you finish reading, you are left with a feeling of wanting more.
on July 21, 2003
Burrough and Helyar are two former Wall Street Journal reporters who present a comprehensive telling of the battle for control of RJR Nabisco, ultimately won by KKR, led by Henry Kravis in 1988. The book was written in 1990 and provided the final chapter on the LBO excesses of the 1980's. By 1990, the stock market rally had made LBO's less attractive and some of the earlier deals were already starting to unravel and collapse under the weight of the debt payments, as predicted by long-time junk bond critic and rival RJR Nabisco bidder Ted Forstmann.
There are some criticisms of this book. The authors, despite their finanical backgrounds, seem to prefer story-telling to financial details. Hence, they have written a tale of personalities, with an especial interest in Ross Johnson and Henry Kravis, to the detriment of really explaining the financial and business details. The reader can learn intricate details about Johnson and the Wall Streeters preferences in cars, apartments, drinks, wives, schoos, etc. The authors seem to think we need a biographic account of all minor players, starting with their grade-school years, and the end result is 528 pages and still minimal financial explanation.
The other main criticism here, reading this now, is how dated the material has become. The authors would do well to provide some new material on how the deal has worked out. From other sources, I learned that KKR renegotiated the deal in the early 1990's (the resets were nearly toxic after all) and sold out their position entirely in 1995, more or less breaking even, depending on whose numbers you use.
The story of the final bids and the final final bids is truly riveting and meticulously researched here. The Johnson group ultimately presents a bid that is slightly higher than the KKR bid, but the board discounts the Johnson bid since it does not guarantee the bond pricing, and calls the whole thing a tie, much like the 2000 election. At that point, the Board accepts the KKR bid, for non-economic reasons, mostly bad publicity related to Johnson's greed. Ironically, Johnson had already given up much of his payout in order to boost the total value of the bid to the shareholders.
on February 10, 2003
Even as times change, the way business is conducted does not. Business dealings at the highest levels are still usually about fame and egos rather than what is good business sense. It is within this context that the outstanding Barbarian at the Gates, by Bryan Burrough and John Helyar, has been written. This fascinating and detailed account, by the Wall Street Journal reporters who initially reported the case, gives insight into corporate power struggles to buy RJR Nabisco back in the late 1980's.
More specifically, the story involves Rob Johnson, the then CEO of RJR Nabisco and how some investment bankers corral him into a highly risky, yet immensely lucrative MBO. The story unfolds with great suspense (and wit) as the process of the MBO occurs. The writers have taken arcane financial terms and made them easy for any reader to understand so an MBO (management buy-out) is not understood only by an MBA.
But much more powerfully, the writers have given the characters great depth as the reader really can envision who these players are. When Kravis is sitting at the table, the writers clearly describe who has the power and who doesn't. You get the sense that you are right in the middle of the action. Barbarians at the Gate is an entertaining and informative tale about Corporate America.
You will not be disappointed with this read.
on January 20, 2003
This is one of the great books of business. Not only is it a great story in its own right, the authors were able to put together the facts of the story in an incredibly lively and detailed way. They paint this story on a big enough canvas to let a large cast of incredible characters act out their part in this amazing saga.
The easy larger than life characters are Ross Johnson, Henry Kravis, George Roberts, Peter Cohen, and maybe even Ted Forstmann, but there are so many more. There were so many times a deal could have been put together and most likely should have been, but in each instance it slipped away because one ego or another wanted to carve its initials in the bark of what was then the largest deal in history.
For those of us who are interested in how business really works, this is one of the epics in business history. It begins with the founding of the companies involved and the rather amazing story of how Ross Johnson ended up at the helm of RJR Nabisco. The book also gives plenty of evidence of Wall Streeters seeking out their own interest over their clients' needs and desires and contrary to their own promises and assurances. You will become convinced of the aptness of Ross Johnson's adage about the rules of behavior on Wall Street: "Never play by the rules, never tell the truth, and never pay in cash".
Another of the many things I enjoyed about this book is that the personalities of the major and secondary characters are given enough room to become more than just stick figures. There are times you will want to support them, when you will root for them, when you will be appalled by their behavior and ego, and other times you will laugh until your sides hurt. This isn't a simple story drawn with stick figures. If you want to understand American business, this is one of the stories you simply have to know.
While the movie made from this book is quite good and very funny, it doesn't offer you the full range of characters involved nor the detail of the actual negotiations and how the deal finally came to its strange end. The movie captures the mood and the essentials of the story and that might be enough for most. I recommend the movie for those who want the story in broad strokes. However, if you want to really gain an understanding of how this deal in particular and how business deals in general really come together and fall apart, the book is the way to go. The people involved become more three dimensional in the book and where some events and characters are left out or compressed in the movie the book has the room to let the story be told more fully. It isn't that the book is the ultimate truth (I am sure every person involved could point to things they find inadequate in the book), it is that the authors dug hard, got as much of the truth as they could get to and shared it with us in an intelligent, enlightening and often humorous way.
This is a great book I would recommend to anyone, but it is a must read for students of business.
on April 14, 2002
This book is a description of the largest leveraged-buy out of the 80's. The book covers the management buy out of RJR and all the financial moves that took place to get it done. It covers the winners and losers and the tactics they used. The authors are investigative reports so they have the ability to provide the reader with a very well constructed and easy to understand story. They really bring the reader into the negotiations and all the high pressure and tension is coved to the reader. The most fun was when the authors took to describing all the financial players involved, their egos and ways of life and doing business. The excesses of some of the companies detailed are really something.
If you are interested in this topic then I would suggest you also read "Den of Thieves" and "Predator's Ball", both of which cover the 80's M&A and Junk Bond world. To get a better understanding of KKR, I would suggest "Masters of Debit" and if you are looking for more info on this particular deal I would suggest "True Greed".
on September 6, 2001
"Barbarians at the Gate" is a very easy, fun read. It is purposefully written alot like a novel. For one thing, the book shifts frequently between different times and places. For instance, the prologue details the board meeting where CEO Ross Johnson proposes a Leveraged Buy Out (LBO) for the first time. The start of chapter 7, page 184, then picks up from there chronologically, "Johnson rose early the next morning, the memory of Wednesday night's board meeting still fresh in his mind" (pg 184). Also like a novel, the authors give a tremendous amount of background and personal history on the people and companies involved in the deal. There is history about Ross Johnson's personal history, about his time at Standard Brands and Nabisco before the merger with RJR, and then about RJR the company, dating back to the 1800s. There is also a chapter that goes into some detail about KKR and Henry Kravis. All of the information was interesting and well written, though I felt at times like I just wanted to get back to the main plot and away from some of these tangenital details. It was a choice the authors made between making the book more journalistic and conise or more like a novel, and I guess I ended up liking their choice.
The heart of the book is the bidding battle for RJR between KKR and the Shearson Lehman Group (which had Johnson on their side); First Boston also makes a bid but I don't think their bid was ever seriously, seriously considered. The authors describe an LBO as follows, "A firm such as Kohlberg Kravis, working with a company's management, buys the company using money raised from BANKS and the PUBLIC SALE OF SECURITIES; the DEBT IS PAID DOWN WITH CASH FROM THE COMPANY'S OPERATIONS and, often, by SELLING PIECES OF THE BUSINESS" (pg 101). So that is how KKR and the LBOs work. The book takes you through the day by day strategy sessions of the different groups, their attempts to raise financing (equity from private investors, junk bonds issued by the investment banks, and commercial bank loans), their responses to moves from the other side, the meetings of the Special Comittee which would decide which bid to accept, etc.... There are alot of late nights, alot of re-crunching the numbers, alot of personality clashes, lawyers, investment bankers, and more. The writing was so good that it made me feel like I was there, following the deal step by step, and gaining an understanding of what the various parties do and what goes on in an LBO. It was like reading a story and learning about LBOs and how big deals get made at the same time. Very rewarding. I usually don't like books to be this long (515 pgs) but in this case I think almost every pages was worth it.