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. What are some prominent examples of hostile takeovers?

    Learn about some of the largest hostile takeovers in history, including the KKR acquisition of RJR Nabisco and the Vodafone ... Read Answer >>
  2. How does a company decide whether it wants to engage in a leveraged buyout of another ...

    Learn how leveraged buyouts can be profitable by taking companies private, and understand why the debt loads in these deals ... Read Answer >>
  3. Under what circumstances might a company decide to do a hostile takeover?

    Learn about why companies use a hostile takeover to gain control of another company, and understand the different methods ... Read Answer >>
  4. What happens to the shares of a company that has been the object of a hostile takeover?

    Learn about the effect on the share price of companies that are targets of hostile takeovers, which are tactics used by famed ... Read Answer >>
  5. What is the difference between a hostile takeover and a friendly takeover?

    Learn about the difference between a hostile takeover and a friendly takeover, and understand how proxy fights and tender ... Read Answer >>
  6. How can a company resist a hostile takeover?

    Learn about some of the defense strategies a public company's board of directors might employ to prevent a hostile bidder ... Read Answer >>
Related Articles
  1. Investing

    Corporate Kleptocracy At RJR Nabisco

    The excess of the '80s brought about reckless spending and indulgent management. This is a story of both.
  2. Small Business

    What is a Takeover?

    A takeover happens when one company makes a bid to acquire a target company.
  3. Investing

    Warding Off Hostile Takeovers

    The purpose of this article is to provide a general overview of hostile corporate takeovers, while highlighting a general course of action against such activity. This article provides basic information ...
  4. Investing

    Pinpoint Takeovers First

    Use these seven steps to discover a takeover before the rest of the market catches on.
  5. Investing

    Reverse Takeover

    Learn more about this type of takeover and how companies use it to avoid IPOs.
  6. Investing

    Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.
  7. Financial Advisor

    Top 10 Must-Read Books for Finance Professionals

    Interested in the financial world? Here are some books that provide keen insight into its history and how it works.
  8. Investing

    World's Top 10 Private Equity Firms (APO, BX)

    Obtain important information about the world's top ten private equity firms ranked as of 2015, including their investment focus and portfolio assets.
  9. Investing

    The Top 5 Positions in Henry Kravis and George Roberts' Portfolio (KKR, WBA)

    Discover the top five holdings in Henry Kravis and George Roberts' portfolio to see if these stocks can boost your portfolio in 2016.
  10. Investing

    The Biggest Private Equity Firms in New York City

    Discover the top four largest private equity firms, including Goldman Sachs, headquartered in New York City, as ranked by total assets raised since 2010.
RELATED TERMS
  1. Takeover Bid

    A type of corporate action in which an acquiring company makes ...
  2. Black Knight

    A company that makes a hostile takeover offer for a target company. ...
  3. "Just Say No" Defense

    A strategy used by corporations to discourage hostile takeovers ...
  4. Friendly Takeover

    A situation in which a target company's management and board ...
  5. Takeover

    A corporate action where an acquiring company makes a bid for ...
  6. Takeout

    A slang term denoting the purchase of a company through an acquisition, ...
Hot Definitions
  1. Demonetization

    Demonetization is the act of stripping a currency unit of its status as legal tender and is necessary whenever there is a ...
  2. Investment

    An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic ...
  3. Redlining

    The unethical practice whereby financial institutions make it extremely difficult or impossible for residents of poor inner-city ...
  4. Nonfarm Payroll

    A statistic researched, recorded and reported by the U.S. Bureau of Labor Statistics intended to represent the total number ...
  5. Conflict Theory

    A theory propounded by Karl Marx that claims society is in a state of perpetual conflict due to competition for limited resources. ...
  6. Inflation-Linked Savings Bonds (I Bonds)

    U.S. government-issued debt securities similar to regular savings bonds, except they offer an investor inflationary protection, ...
Trading Center