Barbarians at the Gate: The Fall of RJR Nabisco
True Greed: What Really Happened in the Battle for RJR Nabisco
Reading these two books, an exhausting and not altogether agreeable diversion, invites recollection of Newton’s statement that if he had seen far, it was because he stood on the shoulders of giants. The takeover of RJR Nabisco, the multi-billion-dollar food and tobacco enterprise, is the story of a number of men of no particular wit or distinction (most of whom, ironically, are also small physically, which may have a bearing on the story’s psychological subtext) who were enabled to see further, as it were, because they were perched atop a mountain of liquidity—cash and credit available for hire.
This volcanic eminence first erupted in the mid-1970s when, in the wake of the oil-price shocks, the world’s banks, led by Walter Wriston of Citibank, preempted the hitherto monopoly power of the Federal Reserve to print dollars. By 1988, when the RJR Nabisco takeover began, the peak had grown to Everestian heights. The world was awash in exponentially more liquid capital than it needed to conduct its business. Capital now concentrated in relatively few hands, so that tens of billions of dollars could be electronically marshalled in a few days to finance all sorts of commission-paying mischief. The RJR Nabisco transaction can be seen as the logical, revolting culmination of a process that began some fifteen years earlier.
Of the transaction itself, what can be said? In 1988, the chairman of RJR Nabisco, Ross Johnson, an adept corporate politician with as finely developed an understanding of executive perquisites as there has ever been, hatched the idea of buoying up his company’s languishing share price by “doing”—as the vernacular has it—a management buyout.
The process would be simple. Johnson and a band of six associates would borrow $17 billion and use the money to buy in the outstanding shares of Nabisco at a price substantially exceeding that at which they were quoted in the public stock market. At the end of the day the shareholders, many of whom were large, tax-exempt fiduciary institutions (pension and benefit plans), and a goodly number of whom were citizens of Winston-Salem, North Carolina, the “company town” where Reynolds Tobacco (“RJR”) was born and based before it was conjoined with the Nabisco Brands food conglomerate, would pocket handsome profits, profits higher than they would ever expect to realize through the “normal” workings of the stock market. Johnson and his group would then control the company and themselves become rich beyond dreams.
The canny divestment of certain parts of the business, together with the cash profits generated by the retained businesses, would in time pay off the debt. Once again, as we were so often told in the course of the Roaring Eighties, greed would be married with financial ingenuity to produce an entrepreneurial masterstroke emblematic in the finest sense of the high calling which is finance (Wall Street) capitalism.
Alas, it all went badly for Johnson. A combination of…
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