Barbarians at the Gate: The Fall of RJR Nabisco

by Bryan Burrough

executive. He did it with a carefully cultivated sense of style, including the grand entrance. Johnson arrived twenty minutes late, punctually, to everything. “If you’re on time, no one notices you,” he would say. “If you’re late, they pay attention.”

Wasserstein, also trained as a lawyer, paraphrased former Supreme Court justice Louis D. Brandeis. “Sunlight is the best of all disinfectants,” he told Kravis.

“Today’s financial age has become a period of unbridled excess with accepted risk soaring out of proportion to possible reward,” Forstmann wrote. “Every week, with ever-increasing levels of irresponsibility, many billions of dollars in American assets are being saddled with debt that has virtually no chance of being repaid. Most of this is happening for the short-term benefit of Wall Street’s investment bankers, lawyers, leveraged-buyout firms and junk-bond dealers at the long-term expense of Main Street’s employees, communities, companies and investors.”

Peter Darrow and Mike Zimmerman, emerged into the dawn to find their cab had been waiting for eight hours. The meter was still running. “Excuse me, sirs?” the driver said as he dropped the pair off in Brooklyn Heights. “Would you mind initialing this voucher? No one’s going to believe this.”

The backbone of any successful LBO is a set of projections: profits, sales, and, most important, cash flow. Because they dictate the amount of debt a company can safely repay, projections are the key to formulating a bid. And the right bid means everything to an LBO: The higher the price, the higher the debt. Too much debt can crush the healthiest companies.

“but we’re already working with two other groups, and we’ve run out of people who speak English.”

The CEOs of America, at first shocked and horrified by the barbarians at their gates, ultimately emulated them. They’d learned from RJR what fabulous riches were there for the taking. They began to press for their piece of the action.

“CEOs learned two things from LBOs,” says Dick Beattie, who remained in the midst of major deals through the ’90s. “First, the way to build significant wealth was through equity ownership, not salary and bonuses, and second, you didn’t need to do any LBO to build equity. You could give yourself stock options.”