Barbarians at the Gate: The Fall of RJR Nabisco - Book Review

Barbarians at the Gate: The Fall of RJR Nabisco

By Bryan Burrough and John Helyar

Rating: ****

Reviewed by: Kevin Mathew Jacob IInd Year, PGDM

‘Barbarians at the Gate: The Fall of RJR Nabisco’ shoots us right into the midst of Wall Street with its culture of investment bankers and lawyers, who grow fat on the consulting fees generated by takeover deals. This true story centers on the LBO (Leveraged Buy Out) deal of RJR Nabisco, then the largest LBO of its time. Larger-than-life figures – from the flamboyant CEO of RJR Nabisco, F. Ross Johnson, to the tightly controlled and publicity-shy Henry Kravis – are painted in bright colors against a background of extravagant corporate luxury and decadence.

The storyline revolves around the takeover and LBOs going on in Wall Street at the time. Johnson and his management group, worried by the fact that their stock is undervalued at $55 a share, propose an LBO at $75 to the company's board of directors. However, the members of the independent board appointed to evaluate the offer issue a press release instead of keeping the deal quiet until the last moment. Henry Kravis, of Kohlberg Kravis Roberts & Co., always on the lookout for a high-profile deal to hang his name on, pre-empts Johnson's bid with a $90 tender offer.

What happens thereafter can be best summarized as total chaos. Third parties come and go, unable to obtain credible financing. Johnson and Kravis strike a deal, only to see it unravel over seemingly minor disputes. A second management bid of $100 is derailed by a long shot from an outside group led by First Boston, which loses out in a subsequent bidding round. Finally, in protracted overnight negotiations, the board decides to sell to Kravis for $109, rejecting a $112 management bid because of concerns about its underlying financial assumptions.

While Barbarians at the Gate is definitely not an in-depth study of how one goes about doing an LBO, it opens a window into the human psyche. To be more specific, how billion-dollar business deals are really driven by the participants' egos. In the case of RJR Nabisco, no one in Wall Street's community wanted to be left out of the greatest deal of the century. As a result, no one bothered to ask whether their competitive instincts were leading them over the precipice.

Barbarians at the Gate is a good read for the average reader with its compelling investigative writing. The book resembles a murder mystery in its writing style; it keeps the reader turning the pages wondering what is going to happen next. The reader is taken into the world of Wall Street and its culture, and is compelled to remain there by the gripping narrative. The authors, Bryan Burrough and John Helyar, have excelled in their re-creation of events leading to the takeover of RJR Nabisco. The USP of this book lies in its transformation of an insipid subject into a thrilling page-turner which will attract even the most skeptical readers.