Barbarians at the Gate: The Fall of RJR Nabisco

by Bryan Burrough

“Recognize that ultimate success comes from opportunistic, bold moves which, by definition, cannot be planned.”

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.

“Listen, Ross, they have their reasons for doing this other than just buying the company,” he explained. He mentioned the $200 million in upfront fees Shearson would reap from a successful deal. He talked about the unmatched franchise benefits it would reap from having completed history’s largest LBO. Johnson’s problem was that he insisted on thinking in terms of the real world, real money, real investments. In effect, Goldstone said, this wasn’t the real world. This was Wall Street.