The 80s on Wall Street: KKR and The RJR Nabisco Battle (Part 3)

We pick up where we left off in Part 2. Ross Johnson, CEO of RJR Nabisco, presents a management buyout bid for $75-per-share—a number he’s certain will get the deal done without competition.Instead, as soon as the board issues the customary press release announcing the buyout bid, RJR Nabisco is in play as the most prized buyout target on Wall Street.Ross Johnson alienates not one, but two major players on Wall Street: Henry Kravis from buyout specialist firm KKR and Jeff “Mad Dog” Beck from junk bond specialist Drexel Burnham Lambert. It turns out $75-per-share is far from a winning bid.What follows is the most dramatic LBO fight in history: bear hugs and tender offers, bank exclusivity plays, bidders posturing and bluffing, interlopers wanting to plant their flag in the LBO game, and directors getting ambushed in the hallways by bankers hunting for an edge.Chapters(01:04) Recap: Ross’s $75 management bid frames as an “inside raid”(03:30) The board meeting and the press release that put RJR in play(06:31) Kravis takes it personally: why KKR has to enter the fight(07:54) Meet Drexel’s “Mad Dog” Jeff Beck (and why he matters)(14:33) The stock becomes a battlefield: arbitrage, piling in, and momentum(17:11) KKR goes on offense: the $90 tender offer and the greed narrative(25:30) The auction gets hot: new bidders, higher prices, and board pressure(42:28) The final vote—structure, certainty, and the aftermath of the deal(45:54) Lessons learnedReferencesBarbarians at the Gate: The Inside Story of America’s Most Notorious Corporate Takeover by Bryan Burrough, John Helyar (link)RJR Nabisco: A Case Study of a Complex Leveraged Buyout, Financial Analysts Journal, 1991 (link)Junk Bonds: How High Yield Securities Restructured Corporate America by Glenn Yago (link)Dangerous Dreamers: The Financial Innovators from Charles Merrill to Michael Milken by Robert Sobel (link)SponsorsBig thanks to EQT Corporation for helping us bring you the stories of market history and how they apply today. To learn how EQT is unlocking energy to power AI, go to PoweredByEQT.com.Note: this show is for informational purposes only and isn’t investment advice. Backtest hosts and guests may have investments in the companies discussed. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.backtestpodcast.com