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Barbarians at the Gate by Bryan Burrough and John Heylar

Posted by RB Kollannur on July 15, 2012


Note: This review is part of a weekly book review column that I write for City Journal, an English newspaper based in Thrissur, Kerala.

Published on 28/04/2012

Publisher – Random House; Year of Publication – 1990; Pages – 531; Cost at the time of purchase – Rs 453

Have you felt Oreo lately?

Oreo is one of the most iconic brands of biscuits in the world. Introduced in 1912 by the National Biscuit Company (Nabisco) in New York, incidentally as a mimic to a popular competitor, it gained popularity in the US to become the largest selling biscuit in that country. In India, it made a rather late entry in 2011, making a splash under the wing of its new acquisition, Cadbury. However, its popularity in the world can best be judged by how its main competition had already copied the product and even its international advertisements well before they came to India.

Over the course of the past century, the Oreo brand has seen many owners. Among them were two tobacco giants – RJ Reynolds and Philip Morris and two food giants – Kraft and Cadbury. It is expected that once the current owner, Kraft, splits up into separate diary and chocolate businesses, Cadbury will emerge as the new owner of Oreo. While I do have affinity to the biscuit industry being the son of a former biscuit manufacturer, the book I am reviewing today is not about biscuits, but the ownership of the one of largest biscuit brands in the world.

In 1988, an ownership battle ensued for the business conglomerate, RJR Nabisco. Weighing at 25 bn dollars by the end, it was by far the largest corporate takeover at that time. It was initiated by its management, who bid for it at $17.6 bn, but gradually other bidders came in and the bid reached $25 bn. For perspective, Kraft bought Cadbury in 2010 for a paltry 19.5 bn.

The manufacturer of Camel cigarettes, RJ Reynolds Tobacco Company, had bought Nabisco in 1985 in an effort to diversify and compete with the makers of Marlboro – Philip Morris. The company was reorganised as RJR Nabisco and the former CEO of Nabisco, F Ross Johnson became the CEO of the business combine. In late 1988, he launched a bid for the company at almost twice the prevailing market price of the company’s shares.

In a richly researched and detailed book, Burrough and Heylar follow the timeline and the drama from the initial bid to the final takeover, with strict precision. All in all, the process took nearly a year, with two more (serious) bidders emerging and, of course as earlier mentioned, a two third increase in the deal value. The authors spend time detailing the corporate history of the players in the deal; both RJ Reynolds Tobacco and Nabisco and the bidders; Johnson, KKR and Saloman Brothers / First Boston.
It is a book for MBA students, who wish to have a glance at the life of boardroom battles and how multi-billion deals are made. It is also a reminder about assignment deadlines. When the company asked the public to send in their bids, they set a deadline of 5:00 PM. KKR sent it at 5:01 PM, a minute late. More importantly, First Boston send theirs’ late in the night. Both were shortlisted for the final round of bidding.

The deal came in an era epitomised the Wall Street slogan of “Greed is good”, when investment bankers in suits were buying out manufacturing companies they knew nothing about, built on the sweat of its employees. While they had no idea about running factories, they knew a lot more about making a profit. The same was true for RJR Nabisco. Both KKR and Saloman Brothers were among the better investment houses in 1980s USA and the former was specialized in such takeovers. The original bidder, F Ross Johnson, got a $53.8 mn golden parachute as he left the company after the deal in 1989.

The book also details the bidding process and the methods used to fund such a deal, looking back in the history of similar corporate takeovers. As journalists of the prestigious Wall Street Journal, they had access to a large pool of people in the know, of the behind the door battle of the largest corporate battle of the era. The wealth of information provided within these pages is certainly not to be missed.

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One Response to “Barbarians at the Gate by Bryan Burrough and John Heylar”

  1. […] – Published on 13/04/2012 6)    The Hobbit by JRR Tolkien – Published on 21/04/2012 7)    Barbarians at the Gate by Bryan Burrough and John Heylar – Published on 28/04/2012 8)    Micro by Michael Crichton and Richard Preston – Published on […]

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