Movie Review: Barbarians At The Gate

Private equity buyouts are in vogue these days. It feels like almost every week there is an announcement that another company is bought by private equity firms. What’s going on? What makes them so prevalent and how will these buyout end up? I know there was a wave of leveraged buyouts (LBOs) in the 1980s. I want to find out what happened back then. What triggered the LBOs in the 1980s? What made the activities stop? What happened after the companies were bought? Did the buyout firms make money?

The climax of leveraged buyouts in the 1980s was the purchase of RJR Nabisco by Kohlberg Kravis Roberts (KKR). Two Wall Street Journal reporters wrote about it in their book Barbarians At The Gate. It became the #1 bestseller on New York Times. Later it was made into a movie by the same name for HBO.

Because it takes less time watching a movie than reading a 600-page book, I opted for the movie from Netflix. The movie told the story of the fight for RJR Nabisco between its CEO F. Ross Johnson and KKR’s Henry Kravis. After seeing how others made a ton of money doing LBOs, Johnson wanted to do one himself by taking RJR Nabisco private. He pissed off the LBO king Henry Kravis because although Kravis gave him the idea of doing an LBO, Johnson wanted to do it himself, not with Kravis, but with his buddies at American Express and Shearson Lehman. A bidding war ensued. Johnson first bid at $75 a share. Kravis topped it at $90. A few more rounds went by. Finally Johnson bid $112 a share and Kravis bid $109. The board of directors took the bid from Kravis because they despised Johnson after they learned that Johnson made secret deals with his bidding partners Shearson Lehman and Solomon which would give a big piece of the ownership to Johnson himself (Time, Dec. 5, 1988: “If I Fail, I’m on the Hook”).

It’s a good movie. It showed how high finance was conducted. Once the news got out that RJR Nabisco was considering buyout offers, multiple other bankers and lawyers swamped RJR like crazy. It also showed how the bigwigs were corrupt at the top. Johnson had multiple private jets. Keeping the jets was one of his top concerns.

However the movie didn’t really answer my questions about private equity buyouts. How was the purchase price assessed? Did the board sell the company cheap? Did KKR pay too much? How did the employees fare? Perhaps I had my expectation too high. After all it’s a movie, not a documentary. I was expecting it to be like Enron: The Smartest Guys in the Room which is really good. Maybe the book is better than the movie. I will have to read the book and see.

Rating: **** (Good)

Learn the Nuts and Bolts