RJR Nabisco

So I'm right now at Barbarians at the Gate.

And it's this story of these leveraged buyouts stepping in to buy RJ Nabisco.

And the original price that they start with, the management team, I think they're going to buy the company for something like $75.

But then there's all these people that want the company and they're looking at different ways they can buy it with securities and cash and all that.

Look at the record.

In 1988, a group of Wall Street financiers took over RJR Nabisco.

in what was then the largest leveraged buyout in history, a deal so brazen it became a best-selling book and a movie called Barbarians at the Gate.

Because everyone involved understood exactly what it was.

Well, but that's what junk bonds were.

Junk bonds were, at the time, something like even, you know, RJR Nabisco.

You know, they're two huge names.

Both RJR and Nabisco were large companies.

I always loved that acronym SLAMEX.

And we did a bunch of different kinds of private equity that ranged from buying middle market companies to going after RJR Nabisco to making bridge loans to some hostile raiders.

I left Lehman and went to an affiliate of Lazard Frere and worked for Lester Pollock for a long time.

Again, doing a wide variety of different kinds of private equity.

Yes.

So KKR bought RJR Nabisco.

Yes.

My first deal at Morgan Stanley was the exit from RJR Nabisco, swapping those shares into Borden.

What a first deal.

That was my first deal.

Yeah.

Well, a little company by the name of RJR Nabisco.

The '80s end with a deal that defined the era.

In 1988, KKR won a bidding war for RJR Nabisco at roughly $25 billion.

It was the largest buyout ever done, and it held that record for the better part of two decades Brian Burrough and John Helyar wrote the book about it, Barbarians at the Gate, referring to private equity.

Mm-hmm.

Not one of those reasons has anything to do with the business, but they wanna deploy that capital, and they wanna get their 2%.

Even if they fail and they don't get their 20% exit, two and 20, they still get the 2% of that dry powder they put to work.

Let me give you an example.

RJR Nabisco, a company that had been around a long time.

In the early 1980s, a lot of people who bought RJR Nabisco bonds saying, hey, it's a well-established company.

It's got a great reputation.

What can go wrong? Four years later, RJR Nabisco was targeted in a leveraged buyout.

You're saying, what's that? Well, KKR, a private equity firm in New York, targeted RJ and Nabisco, and they quadrupled Nabisco's debt.

In the process, they impoverished existing bondholders and lenders.

Barbarians at the Gate by Brian Burra and John Helyar.

It is about the fall of RJR Nabisco.

RJR, RJ Reynolds is a North Carolina company.

Nabisco is not.