Barbarians at the Gate: The Fall of RJR Nabisco

The RJR Nabisco directors “had watched in growing horror as Ross Johnson turned their company into the centerpiece of a $20 billion circus” (348). They were equally horrified by the management agreement. Johnson’s secret meeting and agreement “was the crowning blow” for the board (348). Tobacco workers considered the latter “the ultimate in ‘insider’ trading,” and shareholders were equally angry (349). RJR Nabisco's workforce was afraid to lose their jobs and even considered making their own bid. In public, a heated debate about the dangers of LBO and its massive debt was taking place. The Federal Reserve questioned “how LBO loans would fare in a recession” (349).

As anti-LBO backlash kept growing, “Kravis grew concerned that it might be doing irreversible damage to the firm’s reputation” (353). As a result, Kravis and Roberts decided to give an interview to a New York Times journalist. At the same time, Peter Cohen’s letter to Ted Forstmann, in which he expressed his deep disappointment about his actions, was leaked to the press. Forstmann felt insulted and believed Cohen had sent the letter, “for purposes of public relations rather than communication” with his firm (357). He responded in kind, calling Cohen’s letter “factually erroneous and totally unwarranted” (357).