The Fall of RJR Nabisco by Burroughs and Hayler

With respect towards procedure with the leveraged buyout itself, it is implicit how the authors consider there are numerous profound problems from the leveraged buyout process, but they deliberately skirt a final conclusion: "Those searching in these pages for your definitive judgment of leveraged buyouts on a American economy will no doubt be disappointed. It's the authors' contention that some organizations are well suited for your rigors of an LBO, although others are not. As for RJR Nabisco, it is essential to remember that an LBO is often a creature of time. In most cases its achievement or failure can't be determined for (several) years. The events in this book constitute the birth of an LBO; at this writing, the reborn RJR Nabisco is barely a year old. The infant looks healthy, but it is too soon to predict its ultimate fate" (Burrough & Helyar, 1990, p. x).

If this really is so, then why have the authors sub-titled their book, "The Fall of RJR Nabisco"? In any case, the story they tell is as significantly a tale of the continuing fall on the United States since it stands out as the fall, or fall and re-rise, of a particular firm. This claim requires a description and discussion of the economic, social/cultural, legal, political, and technological environments which prevailed at the time from the LBO attempt and which affected the firm at that time.

 While Burrough and Helyar fail to note the connection in between the prevailing national economic, political, sociocultural and other environments and also the fiasco at RJR Nabisco, other analysts do not fail to try and do so. Adams and Brock note that the high risktaking of Wall Street financiers was already under way by the time Reagan came into office, but "the Reagan administration, by declining to enforce the antitrust laws, allowed the game to proliferate and expand. The Justice Department challenged a minuscule range (twenty-six) from the virtually 11,000 corporate deals for which pre-merger notification was needed . . . In 1986 [after two earlier "revisions" of merger guidelines in 1982 and 1984] the administration asked Congress to gut the nation's anti-merger law by new legislation" (Adams & Brock, 1989, p. 27). The editors of Insight quote Donald Baker, anti-trust chief under President Ford: "The 'stark reality . . . is how the Antitrust Division these days is less than two-thirds its size once President Reagan took office. It's little than once I came to it very first in October 1966 . . . '" (Insight, 1987, p. 12).

However, Kohlberg Kravis Roberts, four days after Johnson's offer, put forth a counter-offer of $21 billion. Not merely did the organization desire to invest in RJR Nabisco, it even more importantly wanted to safeguard its "franchise" as probably the most powerful and biggest buyout firm within the nation, a position which would had been eclipsed had Johnson's deal gone through.

The battle among Johnson and Kohlberg Kravis Roberts went on for six weeks, and included not just economic but psychological warfare as each side tried to challenge and/or bluff another side into submission.

Eighties have been a brand new gilded age, wherever winning was celebrated at all prices . . .

 

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