A:

The leveraged buyout of cigarette and food giant RJR Nabisco was called the “granddaddy of all takeovers” by a 1990 New York Times book review of the famous book Barbarian’s At The Gate, which chronicled the greed that resulted in the taking of RJR into private hands. It was led by then CEO F. Ross Johnson, who had a reputation for lavish spending and a fleet of 10 corporate jets that was known as the RJR air force.

The buyout of RJR was unique in that it was one of the first and largest LBOs. The drama involved also certainly made it one of the more notable bids, as did the hostile moves of competing bidders. The deal was also extensively covered in the press and through Barbarians at the Gate, making it one of the most investigated deals in history.

Barbarians at the Gate covers the greed and hundreds of millions of dollars in advisory fees that were spent to take RJR into private hands. The newness of junk bonds, which has spurred billions in takeover deals since the 1980s, also makes the RJR LBO one of the more interesting for the trends it has set. An academic case study has chronicled that steady cash flow and low debt made RJR an appealing buyout candidate given high debt loads could be used to take control of the firm. This is a playbook that private equity and hedge funds have used ever since.

The buyout wasn’t technically hostile, which usually indicates that management is against the advances of an outside suitor. Because management first tried to buy out RJR, it was quite friendly. But competing bids did end up materializing and private equity giant KKR ended up with the winning bid, which was certainly hostile to management’s original intentions.

The Bottom Line

The drama of the RJR Nabisco takeover and wide coverage make it one of the most notable takeovers in history.

At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

RELATED FAQS

  1. If a company offers a buyback of its shares, how do I decide whether to accept the ...

    Learn why it may often be in the best interest of a shareholder to accept a tender offer made at a premium to the market ...
  2. How is a tender offer used by an individual, group or company seeking to purchase ...

    Learn how tender offers are used in takeover attempts, and understand the difference between a hostile takeover and a friendly ...
  3. Why would it be in the interest of shareholders to accept a tender offer?

    Learn when it is in the best interests of shareholders to accept a tender offer. A tender offer is a bid to buy a large portion ...
  4. What usually happens to the price of a stock when a tender offer for shares of the ...

    Learn what happens to the price of a stock when a tender offer is made public. Some of the most contentious takeovers have ...
RELATED TERMS
  1. Hostile Takeover Bid

    An attempt to take over a company without the approval of the ...
  2. Hostile Bid

    A specific type of takeover bid that is presented directly to ...
  3. Hostile Takeover

    The acquisition of one company (called the target company) by ...
  4. Poison Put

    A takeover defense strategy in which the target company issues ...
  5. Assented Stock

    A share of stock owned by a shareholder who has agreed to a takeover.
  6. Back-End Plan

    An anti-acquisition strategy in which the target company provides ...

You May Also Like

Related Articles
  1. Investing

    Hostile Takeover

  2. Investing Basics

    Warding Off Hostile Takeovers

  3. Term

    Hostile Takeover Bid

  4. Term

    Hostile Bid

  5. Term

    Hostile Takeover

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!