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Barbarians at the Gate summary

Bryan Burrough, John Helyar

The Fall of RJR Nabisco

4.1 (43 ratings)
19 mins
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    Barbarians at the Gate
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    Wall Street’s modern-day modus operandi started out as a work-around to avoid estate taxes.

    Have you heard the term leveraged buyout, or LBO? Well, by the 1980s, the LBO had become a dirty word, synonymous with corporate greed and the unhinged nature of Wall Street. But at its inception, the LBO was simply a way to preserve family wealth.

    These transactions were devised by clever lawyers who were looking for ways to help wealthy business owners skirt estate taxes and pass money onto their heirs. Not coincidentally, LBOs first came on the scene in the late 1960s, when a generation of people, some of whom had built massive business empires, were getting ready to retire.

    Because of the way estate taxes function, if business owners wanted to retire and pass their companies on to their heirs, they would have had to pay huge sums of money in taxes.

    Under these circumstances, they generally had three options: first, they could pass the company on to an heir and pay their taxes in full; second, they could sell the company, relinquishing control of it in the process; and finally, they could go public, putting the business – and its stock price – at the mercy of the market.

    Naturally, none of these three choices were especially appealing. So, a lawyer by the name of Jerry Kohlberg developed a solution, albeit a rather slow-moving and lengthy one.

    Say Mr. Big was retiring. His lawyers would found a shell company and bring in a number of investors who would take out massive loans to buy Mr. Big’s company out. Mr. Big would still keep a stake in his business, thereby maintaining some control, while the investors would have gotten the target company for a much lower price than if they acquired it at the end of a bidding war with other prospective buyers.

    The money for these buyouts would come from bank loans, insurance bonds and the personal funds of the investors. As a result, the investors involved only paid about ten percent of the cost, while getting 30 percent from insurance bonds and 60 percent from bank loans.

    In other words, the investors acquired the target company for almost nothing, while the shell company took on a massive amount of debt, the effects of which would be mostly felt by the target company.

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    What is Barbarians at the Gate about?

    Barbarians at the Gate (1989) tells the story of one of the largest corporate deals in US history, the leveraged buyout of RJR Nabisco. These blinks provide a gripping portrait of the extreme and extravagant behavior in corporate America during the 1980s.

    Best quote from Barbarians at the Gate

    When Kohlberg came up with the LBO, it was known as a bootstrap deal.

    —Bryan Burrough, John Helyar
    example alt text

    Who should read Barbarians at the Gate?

    • Anyone working in finance or business who wants to learn about a legendary deal
    • Citizens appalled by the excesses of corporate America
    • Anyone enthralled by hostile takeovers and cutthroat dealings

    About the Author

    Bryan Burrough and John Helyar are investigative journalists who covered the story of RJR Nabisco’s buyout as it happened. Their in-depth research and extensive interviews paint a fascinating picture of a unique period in the history of Wall Street.

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