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.

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