Book review - Barbarians at the Gate: The Fall of RJR Nabisco, Bryan Burrough and John Helyar
★★★
I am not an insufferable finance bro, but I do get some book recommendations from someone who was, and this is an example of those. Barbarians at the Gates chronicles a piece of important economic history that took place in some weeks of 1988: the (at the time) biggest ever leveraged buyout of the company LJR Nabisco. Burrough and Helyar were finance journalists who covered these events in real life, and after a copious amount of research and interviews, turned up an engaging, non-fictional account of the business takeover.
Let’s start with some background and character-setting (the book is pretty big and rambling and its cast of characters is very wide, so it is easy to lose track of who is who; in this regard, I’d recommend watching the 1993 movie adaptation of the novel for getting a clear mind map and some faces to latch onto). Nabisco and RJR were vintage, powerful companies (one for cookies, the other for tobacco) that got together into a corporate behemoth in 1986. Besides giving some of the background of these companies, Barbarians at the Gates centers on the story of F. Ross Johnson, a charismatic, luxury-and-celebrities-lover Canadian businessman who ends up at the helm of RJR Nabisco, after having climbed his way to the top mostly through his ability of charming people in general and boards and directors in particular. In the new Gilded Age of the eighties, he represents a ‘new type’ of CEO, whose focus is more on creative shaking up of companies and on giving good perks and a high life to himself and executives than on following slow-and-steady and thrifty models of yore. Different anecdotes about Ross’s profligate spending (like the RJR ‘air force’ of private planes) contribute to a mounting picture of corporate greed and growing, simmering, unpopularity against him forming in the background of the company he manages.
In 1988, Ross decides to engage in a LBO (leveraged buyout), an esoteric financial instrument which the book takes plains to explain to a lay audience. When a CEO of a company thinks its value (as in stocks) is way higher than what the market is showing, he can enlist the help of Wall Street bankers and loans to make a bid for the company, turning it from public (stock-owned) to private. For any big company this requires, of course, gargantuan amounts of money (and debt), and after the LBO, CEOs become effectively prisoners of the people who lent them their money. It is easy to see how LBOs might become a metaphor for the worst aspects of finance: shareholders are forced to sell their shares, companies need to go through severe restructuring and are saddled with debt (with lots of piecemeal sales and job losses to make the companies run more efficiently and start to pay for the debt incurred in the takeover), and very big (to the public eye, obscene) amounts of money are accrued by CEOs and bankers. While LBOs might ‘trim the fat’ from companies and make them more dynamic, they are not what one would see as the traditional ways of ‘creating value’ for company, shareholders and company workers (things like investment and renewal, R&D, better hires and healthy competition with rivals, etc…).
Although Ross is initially reluctant to play the LBO game, stagnant values of the stock, the unlikely success in sales from a new, ‘smokeless’ cigarette and even personal boredom with stability, finally lead him to to it. For the buyout he partners with American Express’s Shearson Lehman Hutton, a company with little experience with LBOs but so eager to enter the field that they agree on extremely generous conditions for Ross; but this choice infuriates Henry Kravis, the savvy and most experienced doyen of LBOs and the first to have suggested the idea to Ross Johnson. This starts a competitive bid for RJR Nabisco which after many ups and downs, theatrical twists, turns, betrayals, long and zany waiting sessions in corporate rooms and literally last-minute bids, and ends with Kravis’s victory.
At its core, then, Barbarians at the Gates is a story about greed, and a crash course on how Wall Street functioned, untethered by regulations, through creative ways of making money for its people. It is not just about a business deal; it's a cautionary tale about corporate greed, the perils of excessive ambition, and the human cost of financial machinations. Through its vivid portrayal of the 1980s corporate culture, the book invites readers to reflect on the ethical boundaries of capitalism and the true price of success. The story that is being told is quite nuanced, though: the wide cast dwells in numerous characters who have complex motives and big-ego personalities beyond the accumulation of capital. Beyond Ross and Kravis you get, among many, people like Peter Cohen, the cocky and insecure LBO head planner in the Shearson team, Ted Forstmann, the deontological LBO trader who hates Kravis and spews Philippics against the ‘junk bonds’ that finance most LBOs, Ed Horrigan, Ross’s right-hand tobacco man and bulldog or John Greeniaus, CEO of the Nabisco division and incensed betrayer of the company’s secrets to Ross’s rivals.
In spite of its not too small size, the book reads quite well, once you become acquainted with the vast cast of characters and with the minimum financial knowledge. The events it describes have lost much of the luster and relevance, 30 years after the facts. In a way, it reminded me Scorsese’s Casino: in both you see a lavish, flamboyant, prodigal, over-the-top and morally ambiguous world and we get foreshadowing of the eventual decline of such excess. As Ross was fond of saying, “Some millions get lost in the sands of time”.