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The key points of 'Barbarians at the Gate: The Fall of RJR Nabisco' by Bryan Burrough

'Barbarians at the Gate: The Fall of RJR Nabisco' by Bryan Burrough is a captivating account of the dramatic events surrounding the hostile takeover of RJR Nabisco. The book delves into the intricate details of the bidding war, the LBO strategy employed, and the ultimate downfall of a corporate giant. Through a blend of financial analysis and compelling storytelling, Burrough sheds light on the key players and events that shaped this iconic moment in business history.

Key Takeaways

  • The intense bidding war between competing parties highlighted the ruthless nature of corporate takeovers.

  • The use of the Leveraged Buyout (LBO) strategy showcased the financial engineering prowess of dealmakers.

  • Shareholder reactions ranged from excitement over potential gains to concerns about the company's future stability.

  • The financial impact of the RJR Nabisco takeover reverberated throughout the business world, setting new precedents.

  • The legacy of the RJR Nabisco saga serves as a cautionary tale for companies navigating the complexities of corporate finance.


Background of RJR Nabisco

RJR Nabisco was an American conglomerate that became a symbol of the excesses of the 1980s corporate world. RJR Nabisco's history is marked by aggressive expansion and diversification, which led to its status as a behemoth in the tobacco and food industries. The company's origins can be traced back to the merger of R.J. Reynolds Tobacco Company and Nabisco Brands in 1985.

Key players in the company's history include CEOs F. Ross Johnson and Louis V. Gerstner Jr., whose leadership styles and decisions would later become focal points in the unfolding drama of the company's leveraged buyout (LBO).

  • 1985: Merger of R.J. Reynolds Tobacco and Nabisco Brands

  • 1987: Introduction of smokeless cigarettes

  • 1988: LBO announcement and subsequent bidding war

Key Players

The battle for control of RJR Nabisco featured a cast of characters whose decisions and actions would ultimately shape the outcome of one of the largest leveraged buyouts in history. At the heart of the narrative is F. Ross Johnson, the CEO of RJR Nabisco, whose initial bid to take the company private set the stage for the ensuing takeover battle. Opposing him was Henry Kravis, co-founder of Kohlberg Kravis Roberts & Co. (KKR), a firm specializing in leveraged buyouts, who saw the potential for a lucrative deal.

Other pivotal figures included Peter Cohen, CEO of Shearson Lehman Hutton, and George Roberts, another co-founder of KKR. Their roles in the bidding war were crucial, as they represented the interests of different stakeholders and employed various strategies to gain control. The dynamics among these key players, along with a host of investment bankers, lawyers, and advisors, created a complex web of negotiations and counter-moves.


The timeline of the RJR Nabisco takeover is a complex series of events that culminated in one of the largest leveraged buyouts in history. The bidding process began in October 1988, when the management team of RJR Nabisco announced their intention to buy the company for $75 per share, a move that would take the company private.

Following the announcement, a fierce bidding war ensued, involving several high-profile investment firms and personalities. The final offer came from the investment group led by Kohlberg Kravis Roberts & Co. (KKR), which closed the deal at $109 per share in early 1989. This monumental transaction highlighted the leverage of buyout strategies during that era.

  • Timeline of Key Events:

  • October 1988: Management-led buyout proposal

  • November 1988: KKR enters the bidding war

  • December 1988: Final bids submitted

  • January 1989: KKR's winning bid accepted

Hostile Takeover

Bidding War

The bidding war for RJR Nabisco stands as one of the most dramatic episodes in corporate takeover history. F. Ross Johnson, the CEO of RJR Nabisco, initially proposed a management buyout that sparked a frenzied auction for the company. Competing bids came from a range of high-profile investors, including the leveraged buyout firm Kohlberg Kravis Roberts & Co. (KKR).

The intensity of the bidding process was marked by aggressive tactics and rapid increases in offer prices. Here is a simplified timeline of the key events:

  • Johnson's initial buyout offer

  • KKR's first counteroffer

  • Successive bids by other interested parties

  • Final bid and acceptance by KKR

LBO Strategy

The Leveraged Buyout (LBO) strategy employed in the takeover of RJR Nabisco was a financial maneuver that involved using borrowed funds to acquire the company. The goal was to improve the company's efficiency and profitability, then sell it or take it public again at a higher valuation.

Private equity firms typically use LBOs to take control of companies, leveraging the assets of the company being acquired to secure the necessary debt. This strategy can lead to significant returns on investment if executed successfully, but it also carries substantial risk due to the high levels of debt incurred.

The key components of an LBO strategy include:

  • Acquisition of a company using a significant amount of borrowed money.

  • Improvement of the company's financial performance through cost-cutting and restructuring.

  • A planned exit strategy, either through a public offering or a sale, to realize gains.

Shareholder Reactions

The announcement of the leveraged buyout (LBO) proposal for RJR Nabisco sparked a spectrum of reactions among shareholders. Many were initially skeptical, questioning the feasibility and the true value it would bring to their investments. However, as the bidding war escalated, the prospect of a lucrative payout became more tangible, leading to a shift in sentiment.

Shareholder meetings became contentious arenas, with investors divided between supporting management's decisions and pushing for higher bids. The uncertainty of the outcome led to volatile stock prices, as shareholders reacted to each new development in the takeover battle.

  • Concerns over the company's future

  • Debates on the ethical implications of the LBO

  • The influence of shareholder activism on the bidding process

Fall of RJR Nabisco

Financial Impact

The fall of RJR Nabisco had a profound financial impact on the company, its shareholders, and the market at large. The leveraged buyout (LBO), which was the largest of its time, left the company burdened with an enormous amount of debt. This debt significantly affected its operational flexibility and led to a series of cost-cutting measures.

Debt levels post-takeover were staggering, with RJR Nabisco owing billions to its creditors. The company's financial health deteriorated as it struggled to meet its debt obligations, leading to a downgrade in its credit rating.

The following table summarizes the key financial figures before and after the LBO:

The numbers clearly show the drastic change in the company's financial position, with net income plummeting into the negatives and debt skyrocketing.

Legal Consequences

The fallout from the RJR Nabisco buyout extended beyond financial turmoil, leading to significant legal consequences. Lawsuits were filed by shareholders, alleging that the executives and the buyout firm had manipulated the process to their advantage, at the expense of the shareholders' interests.

  • Class-action lawsuits claimed breaches of fiduciary duty.

  • Investigations were launched into the conduct of the bidding process.

  • Legal scrutiny put leveraged buyouts under the microscope, influencing future regulations.


The fall of RJR Nabisco stands as a cautionary tale of the excesses of the 1980s corporate raiding and leveraged buyout (LBO) frenzy. The sheer magnitude of the deal reshaped Wall Street, setting new precedents for future transactions. The event also sparked a significant shift in corporate governance, with increased scrutiny on executive decisions and a greater emphasis on shareholder value.

The legacy of RJR Nabisco's fall is multifaceted, impacting not just the financial world but also popular culture. It inspired books, movies, and a reevaluation of the ethics of corporate takeovers. Below is a list of key legacy points:

  • Introduction of more stringent regulations for corporate acquisitions

  • A heightened awareness of the potential pitfalls of high-leverage financing

  • The embodiment of 80s corporate greed in popular media


In conclusion, 'Barbarians at the Gate: The Fall of RJR Nabisco' by Bryan Burrough provides a gripping account of the high-stakes corporate takeover of RJR Nabisco. The book highlights the complexities of corporate finance, the power struggles among key players, and the impact of greed on business decisions. Through detailed storytelling, Burrough sheds light on the ruthless world of Wall Street and the consequences of unchecked ambition. This book serves as a cautionary tale for those navigating the corporate world, emphasizing the importance of ethics, transparency, and strategic decision-making. 'Barbarians at the Gate' is a compelling read that offers valuable insights into the dynamics of corporate takeovers and the human drama behind them.

Frequently Asked Questions

What is the background of RJR Nabisco?

RJR Nabisco was a diversified food and tobacco company based in the United States, known for iconic brands like Oreo cookies and Camel cigarettes.

Who were the key players in the fall of RJR Nabisco?

The key players included Ross Johnson, CEO of RJR Nabisco, Henry Kravis, and George Roberts of Kohlberg Kravis Roberts (KKR), and a number of other investment firms and bankers.

What was the timeline of events leading to the fall of RJR Nabisco?

The timeline included a series of events starting from the initial bid by Ross Johnson, followed by a bidding war, the implementation of the LBO strategy, and ultimately the acquisition of RJR Nabisco.

How did the hostile takeover unfold through the bidding war?

The bidding war involved multiple rounds of offers and counteroffers between different parties, driving up the price of RJR Nabisco and intensifying the competition.

What was the LBO strategy employed in the takeover of RJR Nabisco?

The Leveraged Buyout (LBO) strategy involved acquiring RJR Nabisco with a significant amount of debt, using the company's assets as collateral.

What were the financial impacts of the fall of RJR Nabisco?

The fall of RJR Nabisco resulted in significant financial losses for the company, its shareholders, and the parties involved in the acquisition.

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