Ted Forstmann, of course, felt thoroughly vindicated by the collapse of the junk-bond era. He was the hero of a series of laudatory press clippings, the lonely voice in the dark who had triumphed over greed. His advisers told Forstmann to cool it, and to an extent he did. But the pull of righteousness was often too much, and Forstmann lapped up the attention, which, of course, he deserved. The final irony came in early 1990 when, as Henry Kravis scraped to keep RJR Nabisco together, Forstmann began doing deals again. Not many—just a deal here, a deal there—but it was more than anyone else in the LBO business managed. With junk bonds out of fashion, Forstmann’s “real money” returned to the fore. For the first time in years, Ted Forstmann was the toast of the town.
In Atlanta, Johnson took perverse pride in the slowdown. “I scared them all back into the closet,” he said, giggling, in May 1989. “Eighty or ninety percent of companies had LBO studies. Now I have people telling me, ‘Jesus, Ross, we burned every file we had.’”
Unlike others, Johnson neither brooded nor looked back. Jobless, he moved into offices in another building at the Galleria, where he shared a floor with a country music radio station. His new enterprise, a partnership with John Martin, was called RJM Associates. The two pals were always hard-pressed to say exactly what RJM Associates did, though it seemed to involve giving ad hoc advice to their friends for a dollar-a-year fee. (With an $18.2 million golden parachute of his own, Martin no more needed the income than Johnson.)
Johnson did invest with some old pals in a venture that bought Nabisco’s Far East operations. But mostly he enjoyed himself. Between golf and ski vacations, Johnson puttered around with the seven corporate boards he was on. He went to movies with Laurie and continued the vigil for son Bruce, who emerged from his coma but remained in a trauma clinic, unable to speak. He has begun to communicate through spelling. “We’re quite encouraged,” Johnson said in the summer of 1990.
Though Johnson professed to be delighted with the semiretired life, friends doubted he would stay that way. For one thing, it wasn’t in his nature to fly commercial. It might take a rehabilitation period for his reputation, friends said, but Ross Johnson would be back. In words that could be his epitaph, he didn’t deny it. “I’m always available,” he said, “for change.”
For all the upheaval, few in Winston-Salem blamed Kravis. Instead it was Johnson they continued to villify. Only a few took a broader view. “If Ross Johnson hadn’t existed,” said Gene Hoots, RJR’s former pension manager, “it would have been necessary for Wall Street to invent him.”
In a sense it had. Johnson was a product of his times, as surely as R. J. Reynolds was of his. The Roaring Eighties were a new gilded age, where winning was celebrated at all costs. “The casino society” Felix Rohatyn once dubbed it. The investment bankers were part croupiers, part alchemists. They conjured up wild schemes, pounded out new and more outlandish computer runs to justify them, then twirled their temptations before executives in a “devil dance.” That, at any rate, is what Johnson took to calling it. Depending on one’s viewpoint, the “dance” Johnson initiated at RJR will go down as either the high point or the low point of an era.
It wasn’t an accident that RJR Nabisco should provide that moment. In its final decade Reynolds had become less a great company than a great dream machine. Its torrent of tobacco money allowed egos to run wild and fantasies to become true. Paul Sticht could walk with kings. Ed Horrigan could live like kings. Directors could be treated like kings.
Hoisted onto the auction block, the company became a vast prism through which scores of Wall Streeters beheld their reflected glories. Jim Maher could restore First Boston’s greatness. Ted Forstmann could pursue his final jihad. Peter Cohen could go from administrator to merchant-banking prince. Henry Kravis could have an empire’s crowning touch. John Gutfreund could get the left side of the ultimate tombstone.
The founders of both RJR and Nabisco would have utterly failed to understand what was going on here. It is not so hard, in the mind’s eye, to see R. J. Reynolds and Adolphus Green wandering through the carnage of the LBO war. They would turn to one another, occasionally, to ask puzzled questions. Why did these people care so much about what came out of their computers and so little about what came out of their factories? Why were they so intent on breaking up instead of building up? And last: What did this all have to do with doing business?
Authors’ Note
When we wrote Barbarians at the Gate in 1989, it was a book about current events; now it’s history. Some books age better than others. We’d like to think Barbarians has aged well. The book is still used in major business schools to teach any number of topics, from ethics to investment banking. In 1993 it was made into a movie on HBO. In 2002, fourteen years after its heyday, the RJR fight was dramatized once again in a documentary film on the History Channel.
This kind of reception was the furthest thing from our minds when we set out to write a book in 1989. Our primary goal, in fact, was simply to see whether we could actually write a book; neither of us had ever tried it before. Nor was Barbarians exactly a prize publishing executives were fighting to handle. Of the half dozen publishers we approached, in fact, precisely one, Harper & Row (now HarperCollins), had the slightest bit of interest. The newspapers had been saturated with the RJR story for weeks. Who wanted to read more?
As reporters for the Wall Street Journal, we strived to imbue Barbarians with the standards of excellence and accuracy we learned at the paper. Indeed, Barbarians would not have been possible without the encouragement—and the eight months of unpaid leave—that its editors, Norman Pearlstine and Paul Steiger, gave us.
That October, when the RJR story broke, Bryan was the Journal ’s reporter on the Wall Street mergers and acquisitions beat; based in Atlanta, John covered the company itself. Together we covered the twists and turns of the RJR fight for six long weeks. It was only when the struggle was over, and we agreed to write a book, that we actually met each other. John held up the infamous Time magazine cover of Ross Johnson so that Bryan could identify him at the Atlanta airport.
We’re often embarrassed to admit the research and writing of Barbarians occurred in eight short months, from January to August 1989. It was a manic period. From an un-air-conditioned apartment in the Park Slope section of Brooklyn, Bryan rode the subway into Manhattan to hold as many as six interviews a day; we believed strongly that all interviews should be done in person. At night he would return to collate and “write up” his interview notes, sometimes donning swim trunks and a T-shirt in the summer heat. John had more traveling to do, shuttling between Atlanta, North Carolina, and New York to assemble the story of Ross Johnson’s ascent. We worked separately except for the crucial interviews with Johnson himself, informal marathon sessions held in Atlanta and Manhattan over pizza and soft drinks.
As we worked on the book, we worried that RJR would be eclipsed by some even bigger and wilder deal. Between corporate raiders, LBO artists, and junk-bond financiers, the whole 1980s business world had gone mad. The barbarians’ next assault could reduce RJR from epic to footnote. (That’s why Harper wanted the book so fast.) We braced for that black day, which never came.
The battle for RJR, it turned out, both defined and ended an era. KKR’s winning bid of $25 billion stood for nearly a decade as the biggest business deal of all time. Several factors combined to tamp down the size of deals for several years. The great money machine behind LBOs—junk bonds—sputtered and for a time virtually stopped. Mike Milken went to jail; Drexel Burnham went bankrupt, and, in the early-’90s recession, battered overleveraged companies gave leverage a bad name. Henry Kravis ceased stalking big game, preoccupied with the care and feeding—and debt service–of RJR. Other stars of 1980s Wall Street—and combatants for RJR—also overdosed on hubris and faded. John Gutfreund was ousted as chairman of Solomon Brothers in 1991, after a treasuries trading scandal. His president, Tom Strauss, also resigned and joined Peter Cohen in obscurity at a hedge fund. Others became
boutique bit players, too, including Tom Hill, at Blackstone Group, and Steve Waters at a European private equity fund called Compass Partners.
About the only Barbarians figure whose star rose was Steve Goldstone. The onetime attorney to Ross Johnson eventually became CEO of RJR Nabisco. But even Goldstone’s job amounted to presiding mainly over the demise of the once-mighty company. In 1999, he sold Nabisco to Phillip Morris, divested RJR’s international tobacco business, and brought the company right back where it started from: a U.S. tobacco company based in Winston-Salem, North Carolina. Kohlberg Kravis exited RJR soon thereafter, with humble returns.
But even as Wall Street’s gunslingers of the 1980s drifted off into the sunset, they ushered in the dawn of the even wilder decade of the ’90s. The CEOs of America, at first shocked and horrified by the barbarians at their gates, ultimately emulated them. They’d learned from RJR what fabulous riches were there for the taking. They began to press for their piece of the action.
“CEOs learned two things from LBOs,” says Dick Beattie, who remained in the midst of major deals through the ’90s. “First, the way to build significant wealth was through equity ownership, not salary and bonuses, and second, you didn’t need to do any LBO to build equity. You could give yourself stock options.”
With that currency, the CEOs of the ’90s reaped sums to make even Ross Johnson blush—and make greed as commonplace on Main Street as Wall Street. That grasping spirit extended even to once-staid accounting firms, which became more like croupiers than auditors. “It was the investment bankers,” growls Paul Volcker, the former Fed chairman who made a failed effort to rescue scandal-plagued Arthur Andersen. By the time he arrived in early 2002, the big swinging dicks of Wall Street had thoroughly infected the green-eyeshade crowd. Recounts Volcker: “The accountants felt like, ‘We’re as good as they are and we’re doing all the work.’ The general atmosphere was, ‘Money is out there for the taking.’”
Call it “the triumph of the barbarians,” and chalk it up as one good reason this book remains relevant. The infamous CEOs of today like Dennis Kozlowski and Bernie Ebbers are really Ross Johnson’s modern equivalents. They evolved what he pioneered: the CEO as self-interested no-company man; the CEO as daring swashbuckler and bold expropriator of corporate assets. They merely operated on a far grander scale, for, in the bull market and tech bubble of the ’90s, the stakes and bucks were so much greater. Even nobodies like Henry Samueli and Henry Nicholas, cochairmen of a company called Broadcom, reaped $800 million apiece, cashing out stock in their company while telecom was still hot. Compared to that, Ross Johnson’s once-outrageous $53 million golden parachute is parsimonious.
But even if the events in Barbarians have now been surpassed in terms of dollars, it remains unmatched for dramatics. And not because of the skills of the authors, Lord knows. It’s because for those six weeks in 1988, when a new set of business barons vied to own a huge company and to be top dog on Wall Street, the planets were so perfectly aligned. The zeitgeist of an age was on full display in the war for RJR: raw emotions and colliding egos; improbable plot twists and even more improbable characters. Other authors have done masterful jobs with business sagas—David McClintick’s Indecent Exposure is the template for us all—but none have been so blessed with raw materials. We had investment bankers wolfing down Milk Bones and sprinting through Midtown Manhattan, bearing last-minute bids. We had a CEO whose dog rated a corporate jet and whose life motto was: “A few million dollars are lost in the sands of time.” We are forever grateful to them all. You couldn’t make this stuff up.
Searchable Terms
Abely, Joe
Abs, Hermann
Ackerman, Peter
Adams, O. C.
Advertising
of tobacco products
Advo
Akers, John
American Brands
American Express
board of directors
American Heart Association
American Standard
American Tobacco Company
Aminoil
Ammon, Theodore
Amritraj, Vijay
Anderson, Bob
Anderson, William S.
special committee and
Andreas, Dwayne
Anschutz, Philip
Applegate, Lester
Araskog, Rand
Arledge, Roone
Armfield, Nabby, Jr.
Arnold & Porter
Astor, Brooke
Atkins, Peter A.
Beattie’s protest letter to
bids analyzed by
The First Boston Group and
Fort Howard and
second round of bidding and
special committee and
Atlanta, Georgia
RJR Nabisco headquarters in
RJR Nabisco move to
Atlanta Constitution
Austin, Rodney
Badie, Ronald
Bagley, Smith
background and education of
Baines, Mack
Baker, Bob
Bankers Trust
Banking. See Investment bankers; Merchant banking; specific banks
Barford, Ralph
Barrett, Andrew
Barrows, Fred, Jr.
Barrows Industries
Barry University
Bason, George R. (“Gar”), Jr.
letter to Cohen
Bass, Anne
Bass, Robert
Batten, David
Beatrice
Beattie, Richard I.
The Drexel Problem and
Millard and
in peace talks
protest letter of
second round of bidding and
Beazer PLC
Beck, Jeffrey (“The Mad Dog”)
background and education of
Johnson and
Kravis and
tender offer leak and
Beecham PLC
Bench, Johnny
Benevento, Frank A., II
background and education of
fee requested by
Johnson and
Project Alpha and
second round of bidding and
Bergson, Paul
Berisford
Bershad, Stephen W.
Bickmore, Lee
Bidding approaches
Bids (bidding process). See also specific groups and firms
extension of
second round of
Bilzerian, Paul
Black, Leon
Black & Decker
Black Monday
Block, Dennis
Blundell, William
Boesky, Ivan
Bogeys
Boisi, Geoff
consortium proposed by
Hill’s conflict with
Hill’s suspicions about
Bond-offering problem. See Drexel Problem, The
Bonds
junk. See Junk bonds
Kohlberg Kravis Roberts & Co.
RJR Nabisco
Boren, Orten
Boren Clay Products
Bott, Paul
Bowman Gray School of Medicine
Bradley, Pat
Brandeis, Louis D.
Bridge loans
Buchanan, Peter
Buffett, Warren
Business Week
Butler, Albert L., Jr.
special committee and
Calloway, Wayne
Camel
Campeau, Robert
Canada Dry
Canadian General Electric
Capital Cities/ABC
Carbonell, Bob
Johnson and
Cassini, Oleg
Castle & Cooke
Castle Pines Golf Club
“Cavaliers, The,”
Celanese
Chase Manhattan
Chase & Sanborn Company
Cigarettes. See also specific brands
advertising of
/> loading of
smokeless
Cipollone, Anthony
Cipollone, Rose
Citibank
Clendenin, John
Cogut, Charles (“Casey”)
Cohen, Karen
Cohen, Peter A.
background and education of
Bason’s letter to
Beattie and
career climb of
correspondence of
The Drexel Problem and
Forstmann and
Johnson and
Kravis’s meetings with
leveraged buyouts and
Robinson and
second round of bidding and
tender offer and
third bid and
Congress, U.S.
Cookie wars
Coppers, George
Corporate debt
“Corporate Strategy Update,”
Cram down
Cravath Swaine & Moore
Credit Suisse
Creedon, John
Crenshaw, Ben
Daly, Tom
Darrow, Peter
Davis, Martin S.
background and education of
special committee and
Davis Polk and Wardwell
Deal heat
De Benedetti, Carlo
Debt, corporate
De la Renta, Oscar
Delaware case law
Del Monte
Desmarais, Paul
Dickenson, Judy
Dillon Read
Dinah Shore LPGA golf tournament
Dole
Dole, Bob
Donaldson, Sam
Donaldson Lufkin & Jenrette
Dorfman, Dan
Douglas, Michael
Dowdle, Ginny
Dowdle, John
Dow Jones News Service
Downs, Ed
Drapkin, Donald
Drexel Burnham Lambert. See also Drexel Problem, The
Drexel Problem, The
Dr Pepper Co.
Barbarians at the Gate Page 64
