Barbarians at the Gate Essay

2230 Words Jul 17th, 2007 9 Pages
A Book Review

Barbarians At The Gate
The Fall of RJR Nabisco
Bryan Burrough and John Helyar

Barbarians at the Gate has been called one of the most influential business books of all time - the definitive account of the frenzy that overtook Wall Street in October and November of 1988 from the leveraged buyout of RJR Nabisco, Inc. by Kohlberg Kravis Roberts & Co. for $24.9 billion. It was the largest takeover in Wall Street history. It was co-written by Bryan Burrough and John Helyar, both journalists for the Wall Street Journal. They wrote a series of articles about the takeover attempt. In 1989, they obtained additional information for the book by doing over 100 interviews. They interviewed all the major people
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Cohen. The deal meant a lot to both Shearson Lehman and Peter Cohen. A successful leveraged buyout of R JR Nabisco would catapult Shearson Lehman into merchant banking, revive the firm's moribund junk bond department and generate up to $200 million in upfront fees alone (Burrough, 154).

In negotiating the LBO with the Shearson, Andrew Sage makes Cohen agree on a secret management agreement, principally negotiated for the seven members of the management group. The agreement, provides that Ross Johnson would have control of the new board of directors, an effective veto. The seven managers would have an initial 8.5% equity stake in the corporation, which would increase up to 18.5% as performance goals were met. Their purchase of this equity interest would be financed by tax-compensated loans from Shearson Lehman. The value of this agreement was estimated to be as high as $2.5 billion over time, with the initial 1% share allocated to both Johnson and Edward Horrigan alone worth $100 million within five years (Burrough, 169). This secret management agreement will eventually turn the tide against Ross Johnson.

On October 19, 1988, F. Ross Johnson, the president and chief executive officer of R JR Nabisco and his management group, worried by the fact that their stock is undervalued at $55 a share, proposed an LBO at $75 or $17.6 billion, in cash to the company's board of directors (Burrough, 1-9).

Johnson was a charismatic

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