Barbarians at the Gate

The Fall of RJR Nabisco

By Bryan Burrough, John Helyar

Barbarians at the Gate (1989) recounts the tale of one of the biggest corporate transactions in U.S. history—the leveraged buyout of RJR Nabisco. The chapters offer an enthralling look at the excessive and lavish lifestyle that characterized corporate America in the 1980s.

About the Authors

Bryan Burrough and John Helyar are investigative journalists who reported on RJR Nabisco’s buyout as it unfolded. Their thorough research and comprehensive interviews deliver an engaging insight into a distinctive era on Wall Street.

Discover one of the most notorious corporate sagas of the 1980s.

The 1980s often evoke images of yuppies, those iconic figures defined by their lavish spending and pursuit of opulence, symbolizing the era's excess.

The saga of RJR Nabisco and its CEO Ross Johnson captures this spirit and the broader vibe of the 1980s perfectly. But this narrative extends beyond a single company—it illustrates the evolution of leveraged buyouts, from a generally positive financial strategy to a more dubious practice.

In this book, you'll explore:

• the reasons behind the popularity of leveraged buyouts;

• Ross Johnson's ascent to power; and

• the reasons that made RJR Nabisco a prime candidate for a takeover.

How Wall Street's Current Practices Originated as a Tax Loophole.

Ever heard of a leveraged buyout or LBO? By the 1980s, this term had become synonymous with Wall Street's unchecked greed.

Originally, however, LBOs were designed as a strategic means to preserve family fortunes against hefty estate taxes.

Crafted by astute lawyers, these financial maneuvers emerged in the late 1960s to aid wealthy business moguls in avoiding estate taxes and securing their legacies for their descendants. This need became pressing as a wave of business founders approached retirement.

Faced with estate taxes, retiring owners had limited options: they could transfer the business to their heirs and face the tax burden, sell off the business, or go public, exposing the business to market volatility.

Unsatisfied with these choices, lawyer Jerry Kohlberg crafted an inventive yet complex alternative.

Imagine Mr. Big is retiring. His lawyers set up a shell company, attracting investors who then borrow heavily to purchase Mr. Big's company. Mr. Big retains a share, keeping some control, while the investors bypass the costs of a competitive bid, acquiring the company at a reduced rate.

The financing of these buyouts typically involved about 10% from the investors' pockets, 30% from insurance bonds, and 60% from bank loans.

Essentially, investors gained control of the company for a fraction of its value, while the shell company assumed substantial debt, impacting the original company significantly.