Barbarians at the Gate

battheg.jpg Do you know what a leveraged buyout is? If your answer is No, don’t feel bad, a majority of other people do not know either. But if you are one of those who want to learn what a leveraged buyout is without having to read boring and dull finance books (my apologies to my friends in finance!) Barbarians at the Gate is the movie you should watch. It is a fictionalized account of the leveraged buyout of RJR Nabisco in the 1980s. Many characters and companies in the movie will be familiar to most students of business- F.Ross Johnson, the CEO of Nabisco, Henry Kravitz of KKR, American Express, Shearson Lehman etc.

Oh, but wait a minute! It gets even better- The movie is not just about corporate leveraged buyouts, the kind of business deals most people will never be involved in in their life time. It’s also about salesmanship, new inventions like the smokeless cigarette (yes, you read it right!), corporate raiders, corruption, greed and many other concepts and ideas that business students learn in school. A truly entertaining and informative movie!

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50 responses to “Barbarians at the Gate

  1. If you liked James Garner in this movie, you might be able to find one of his older and I think a lot better business movie called the Wheeler Dealers.

  2. What a fun movie! Oh, how greedy people can be! It’s just delicious. When in doubt do your research. For a man who knew nothing about a leveraged buyout, he sure made up his mind before learning a single about it. This man was in charge of a wonderful, profitable company; his employees love him, his friends love him, and his business cohorts love him. How easy it was for him to lose it all. All in the quest for the green. The movie made me laugh at times, but made me pretty upset at others. Good movie overall.

  3. Barbarians at the Gate did a great job of going over the aspects of a leveraged by out. It showed how crazy one can get as well. In the beginning Ross wanted to buy all the existing shares for $75 a share. By the end of the movie I believe they finally settled with Henry on $109 a share. Information was leaked throughout the show and it caused the offers to rise and Ross’s image and character to diminish. People soon realized how greedy he was and most people turned against him. I think he realized that one just deciding to do an LBO out of no where is A LOT harder than it really sounds.

  4. Barbarians at the Gate talked about a lot of business topics, including leveraged buyouts, insider trading, business ethics, and management compensation. The directors tried to get you to feel sorry for the CEO (Ross) after the buyout, but in reality, if a member of top-management doesn’t know that he’s spending too much of the company’s money on person things, such as a 10 airplane fleet, they probably aren’t the kind of people you want running your company, especially if you are a shareholder.

  5. Lindsay Cordle

    This was an interesting and quite funny movie. It seemed to show several concepts from my finance course in action including buyouts, takeovers, and the golden parachute. It told the story of Ross Johnson who is a greedy man who only cares about money and will do anything to get as much of it as he can. His spur-of-the-moment idea to do a leveraged buyout of his own company turned against him because word of his plan was inadvertently spread around. Although he didn’t get his way in the end, most would agree that $23 million is more than enough to survive after losing a job. The invention of the smokeless cigarette was amusing, especially when they were discussing how to market it. Premiers couldn’t be called “less harmful” than their other products because they would be insulting their own company, although it is the truth.

  6. Richard Caniglia

    I like the way they added humor to a real world event that was not humorous. I thought it was creative to take that approach. I agree with the Lindsay’s post that $23 million is more than enough to survive for losing his job. I think there was a good lesson for people interested in business about doing your research. Ross Johnson should have done more and that might have prevented him from osing his business. That is what he gets for being greedy.

  7. I found the film to be interesting how it illustrated leverage buyouts. They require a lot dedication and determination. Johnson wanted to minimize shareholder backlash by raising the money to buy the company after the failure of the smokeless cigarette product. Once the media found out about his plan, it quickly went spirally down. Overall, the film was informative and I would recommend it to any business professional.

  8. I think for those who liked this movie, I’d recommend “Pirates of Silcon Valley.” It should be still available at Google Video and maybe Youtube. At Google you could get a free download.

    It’s the Bill Gates – Steve Jobs story.

  9. It is interesting that by the end, Johnson is commenting that he would have paid RJ Nabisco to do be allowed to continue running the company. Being CEO of a company is an awesome thing, and should not be thrown away lightly on the promise of financial gain. These upper level managers need to step back for a minute and think about where they are. It is easy to take things for granted that one has become accustomed to, but hard to realize that the position one holds in a company is essential and unique. There is only one CEO. If you enjoy your job, you should fight to keep it and not to throw it away in a creative manner.

  10. Jason Woodworth

    I found this movie very interesting overall. Many business movies are dull and boring, but there was some humor in this while providing the opportunity to learn about business finance and the leveraged buyout. It showed how a leveraged buyout is performed from the inside, rather than just hitting the surface. I think in the long run F. Ross Johnson only hurt himself with this extreme buyout attempt. The biggest advantage, again, was seeing the necessary steps of performing an LBO from the buyer’s view.

  11. Newspaper boy to CEO – every kid’s dream

    The extravagance that they live in is amazing, two separate planes, huge parties for simple reasons, Gucci watches, etc…

    This newspaper boy, now CEO, doesn’t believe in this leveraged buyout as he doesn’t understand, has strong moral issues with firing people, and an even bigger problem with debt. However this all changes when he realizes that the premiers taste bad and that he is about to be fired… and thus he decides to go against his original judgment and try to buy the company himself through a leveraged buyout, something he doesn’t understand but he is pretending too… and he is warned that he will gain debt and will be unable to continue with all his company paid spending and perks.
    After posting a $75 a share bid, he is challenged by Henry Kravis, and subsequently raises his bid to $112 a share and decreases his take. Regardless he does not get the bid but gets a settlement of $53 million, Nabisco-RJR improves profits by 40%. Everybody ends happily…

  12. Shailendu Shroff

    In this movie we see the rise of Ross Johnson to the helm of a business. This movie can be attributed to some characteristics that are typical of CEOs and upper management ranks as of today:
    – arrogance
    – dominance & autocratic rule & supreme power to rule the company
    – high stakes game
    – greater returns and rewards for hard work which generates visible results
    – greater returns for shareholders and investors in the company
    – increasing corporate image and company image in the industry

    However, employees must realize that the climb to the top is not easy. It results in making numerous enemies who might back out when we really need their help. Today’s businesses (esp. those which seem weak and failing) can be posed with 2 dilemmas viz. either being bought by an employee/insider or being acquired by an external entity. Personally, I prefer the former; since the company structure and policies remain unchanged and there is no major revamp that accompanies such an acquisition; whereas a merger can result in loss of jobs, change in management hierarchy and business processes.

    However, the buyout (any & not only restricted to the one in the movie) can be a nerving experience for the people involved until the final deal is made. With the theme of this movie, I wish to comment on the present business scenario in the USA, which deals with mergers and acquisitions. This includes Microsoft’s attempt to acquire Yahoo and another is Citigroup’s attempt to acquire Wachovia. Both are kind of failed attempts which could have been successful if there was political leverage and if their CEOs had been more emphatic and aggressive. Of importance in such mergers is that independent entities cease to exist and the collaboration needs to make wonders for their customers (which mean that the new company must be popular amongst masses). An interesting example is that of Daimler Benz and Chrysler, which went on a successful merger strategy whereby, the name Daimler-Chrysler was widely recognized and accepted as a new entity in the being.

  13. Although I am not very well informed and often struggle with the fine details involved in the areas of mergers and acquisitions, Barbarians at the Gate served a positive purpose in presenting a difficult issue I often struggle with through a different medium and has helped me if anything to understand the process a bit better. The film deals primarily with the business ventures of F. Ross Johnson, who is the CEO of Nabisco. The movie focuses around the issues that arise as a result of a type of smokeless cigarette that Johnson has pushed into the marketplace. A lot of resources and planning were used to make sure the product was a huge hit, but when it falls flat in the open market, a whole new series of headaches arrive for Johnson. Johnson decides that rather than deal with the ridicule and pressure of Nabisco stakeholders, he will buyout the rest of the company he does not presently own and become the sole executor of the company. Competitor Henry Kravis puts a halt to his plan when he decides he will attempt a leveraged buyout of Nabisco himself. Other companies come into play and offer their bids and ideas for the buyout, but in the end Johnson loses the battle for Nabisco. Mergers and acquisitions are significant occurrences that hold serious impacts on a much wider range of people than simply the bidders and sellers. Not only do the financial impacts for local economies become significant as enormous amounts of wealth and power are transferred, but the effects that the leveraging used to buyout effects the shareholders in many ways. When a company uses leverage to acquire another, large amounts of debt are borrowed and taken on and the shareholders become unsteady and stock prices can become volatile depending on certain factors. In essence, the ripple effects of mergers and acquisitions can be felt far greater than the areas in which those immediately involved are located.

  14. Matthew Passero

    This movie dealt mainly with the greedy and money hungry CEO of Nabisco, Ross Johnson. Ross basically came up with the idea and resources to market the “smokeless cigarette.” However, after this market attempt failed miserably he then decided to go through with a leveraged buyout, but clearly didn’t realize that such a bold move is not something you decide to do so irrationally without careful planning. Ultimately, this attempt at a buyout had also failed due to word spreading about his plan, and there was a better offer by Henry Kravis. In the end Ross did get a settlement and had more than enough money to move on with his life.

  15. This is another movie about business in the financial industry on Wall Street. The story takes place in late 1980s as the CEO of RJR is trying to buy out the rest of company shares from its shareholders based on leverage. Similar to another classical movie “Wall Street”, “Barbarians at the Gate” reveals some of the greedy, corrupted, and unpleasant truth on the street where companies fight against each other through various means for their own benefit. The takeover battle for RJR has triggered a very competitive bidding process since every tycoon out there wants to take advantage of the event to expand its business. Inside trading, bribing corporate partners, and other speculations start to happen aggressively as soon as the buyout information is released to the public. Finally, KKR won the control of the company with a price of 25 billion US dollars. The intensive bidding war between companies for the buyout of RJR is unexpected at the beginning, and the price ranges tremendously as the speculation goes on. Companies sometimes can be utilizing unorthodox strategies to their benefit in a merger and acquisition case like that, yet the ultimate goal is to boost profit and succeed in the long run. Short term drawbacks such as incurred debt and betrayal from negotiation decisions may be sacrificed to serve the long term goal for a company at a corporate and strategic level.

  16. Barbarians at the Gate is based on the true story of Kohlberg Kravis Roberts & Co.’s leveraged buyout (LBO) of RJR Nabisco, Inc. in 1988. This film reminded me of Wall Street, except it had more humor. F. Ross Johnson, the then President and chief executive officer (CEO) of Nabisco, essentially took a gamble and lost. After the failure of Premier cigarettes, Johnson, with the help of Shearson Lehman Hutton, planed his own buyout (i.e., after KKR had already come to him with a proposal) and what ensued was one of the most famous bidding wars in recent business history. KKR ultimately won, but because of the highly inflated buyout price (i.e., $109 per share) Nabisco incurred a tremendous amount of debt.

    Watching this film was similar to taking a crash-course in mergers and acquisitions (M&A). The film embodies the true spirit of capitalism in America and how there are no points for second place. Business acquisitions, while sometimes risky, can vastly improve the financials of the acquiring company, in particular its balance sheet. It is very important for personnel working in the finance departments of acquiring companies to make sure that their estimates and forecasts are as close to accurate as possible. Otherwise, a company can easily overpay for a majority stake in another company. With International Financial Reporting Standards (IFRS) likely being adopted globally over the next two to seven years, I would not be surprised to see the number of M&As increase substantially over that period. If all public companies in world were to report their financial information under one universal accounting system, M&As would become much less costly and time consuming; hence, they would become a much more attractive business strategy.

  17. This is a really interesting movie. This movie tells you what leverage buyout is. This movie features the leverage buyout of RJR Nabisco in the 1980’s. F. Ross Johnson, CEO of Nabisco, decides to talk his company private after receiving advance news of the likely market failure of the smokeless cigarettes manufactured by the company.
    Johnson’s bid for the company is opposed by two of the pioneers of the leveraged buyout, Henry Kravis, and his cousin George Roberts. Kravis feels betrayed when, after Johnson initially discusses doing the leverage buyout with Kravis, he actually takes the potentially enormous deal to another firm, American Express’ former Shearson Lehman Hutton division. Ted Forstmann and his Forstmann Little buyout firm also play a important role.
    In the beginning Johnson wanted to buy all the existing shares for $75 per share and was challenged by Kravis due to which bid was increased to $112. After Kravis and Johnson were not able to solve their differences, bidding war continued, which was ultimately won by Kravis and Johnson gets the settlement of $53 million to live his life happily.

  18. HSI-CHUN WANG

    In 1988, the share price of RJR Nabisco had been depressed for several years. At the time, RJR Nabisco was a holding company for Reynolds and Nabisco. An increase in anti-smoking sentiment in equity-land due to increased litigation risk had meant that even the food assets of RJR Nabisco were trading at a discount.

    At the time leveraged buyouts were all the rage and investment banks were constantly trying to convince management and other potential acquirers of the merits of an LBO. Unlike a traditional takeover where you need a lot of money to buy a target company, the acquirer in an LBO borrows almost all of the money needed to buy the company. At the time, junk bonds were extremely popular amongst investors and so it was very easy to raise huge amounts of cash. Whereas a bank will often take property and other fixed assets as collateral for a conventional loan, in an LBO the acquirer uses the future cash flows of the company as the collateral for their debt – meaning they can stretch the boundaries of financing beyond traditional levels.

  19. After having heard tons of stories about mergers and acquisitions, I finally got a chance to see a very realistic movie. This movie shows how the CEO of Nabisco, Ross Johnson as a very opinionated kind of a leader who tries to sell a no smoking cigarette but falls flat on his face after planning its sales to the best of his abilities. But after this failure he decides to buy the shares back from the share holders and be the whole sole owner of the company .But this leads to a price war in the market and he looses it to Henry Kravis. However, in the end he gets a whooping $53 million and is more than satisfied with it.

  20. Tzu-Chuan Chiu (Anson)

    We all know that Merger and Acquisition is one of the strategies for a company to pursue its strategic goal. And in this movie, we see that Henry Kravis and Ross Johnson competed for the bid of RJR Nabisco by using the means of acquisition. Both parties were trying to acquire RJR Nabisco, but the most interesting things is that none of them knowing the exactly true value of RJR Nabisco. They bid for RJR Nabisco may be just based on the benefit of the risky arbitrage spread of the RJR Nabisco’s stock prices after this acquisition. Leveraged buyout (LBO) is surely the main point of the movie. Through LBO, KKR successfully buy RJR Nabisco by using “other people’s money”. From my point of view, Henry Kravis and KKR’s decision was too risky, because they basically were buying a company without knowing whether it will be profitable in the future. Just like “Henry Kravis” said in this movie, “I am buying a company without knowing its true value”. Though fortunately, RJR Nabisco’s revenue was up 40% higher than it was before after six months of the acquisition. This movie is great case for us to see the practitioner’s LBO process. And I really enjoy the negotiation, competition, and a lot of strategies both parties used in order win the bid.

  21. After watching this movie, I realized how difficult and complicated it is for merger or acquisition. It showed what and how schemes the players had planned. The most impressive scene is the process of negotiations and bidding war. From RJR Nabisco’s perspective, they were not looking for highest bidding price. Instead, they considered their own benefits from the acquisition. Moreover, merger or acquisition should take into account over whole strategy for both companies. Without sharing mutual vision of both companies, it may confront tremendous failures. However, KKR did play well in calculating the numbers and didn’t plot the overall strategic plan after acquisition. That was why they bear dramatic debt later and could not afford it. Although there are numerous advantages of merger or acquisition, but it might exist potential risk for either the acquiring firm or investors and stockholders.

  22. The movie `Barbarians at The Gate’ portrays the story of a hostile takeover of the Nabisco corporation through a leverage buyout (LBO). First taking into consideration the real definition of a leverage buyout, is when the buyout party takes over the operations of the company where a significant percentage of the purchase price is being financed through leverage (borrowing). The assets of the acquired company are used as collateral for the borrowed capital, sometimes with assets of the acquiring company.

    Getting back to the movie, we are looking at the same process where Ross and Kravis are trying to buyout Nabisco with support of a hugh debt, in lure to satisfy the shareholders. But the movie to me points out many more insightful and interesting things about the top management such as greed, power, money and the so obvious evil eyes portrayed by many characters, to get that last pitch through with the board. Sure that Nabisco had low stock price, declining performance and that many shareholders had antsy about their priceholders stock. But on the brighter side they had strong brands such as Oreos, Camels, Winstons and Salems. Yes, they had a recent failure in hand, with the new test results of Premier which had expended till date around $ 350 million of RBS revenues. But I would say may be there were other impending issues driving the company to rock bottom. It’s definitely a remarkable success to build such strong brands as it takes years of investment, research, trust and loyalty. Taking this into consideration maybe LBO wasn’t the best option, but that said we learn the real one sided greed among the buyers as well as the board members who are looking to get richer. I would say a leverage buyout should have been considered after top management had looked into revamping the corporate structure and revisiting internal processes to figure out any loop holes in its value chain process. Maybe there were some hard hidden problems within the system or just simply working back on some aspects on the Premiere would have probably solved many issues. But if the currently established team in Nabisco who have worked on the brand long enough weren’t able to drive the company profits. The question then is how the new management of Kravis will help drive any growths. Hence the issue comes back to whether the buyout party and the buyer have their own vested interest to such an extent that the whole purpose of running a company somewhere takes a backseat.

  23. This movie is really funny. It talks about many business related topics in the movie. The main character here is the greedy CEO of Nabisco. “Barbarians at the Gate” holds a place among the explanation of greed in the 1980’s; it reminds me of another movie I just watched which is also a depiction of greed in the 80’s, “Wall Street”. The fight involves in the takeover of the Nabisco Co. The CEO of Nabisco wants to buy out the company, but is thwarted by the machinations of a big money rival. A rousing financial war begins leading to a satisfying grand finale. This movie is the classic account of the defining takeover in Wall Street merger. It directly deals with issues of leveraged buy-outs, hostile takeovers, and defence tactics. The CEO decides to buy the company himself through a leveraged buyout, though he doesn’t understand but he still wanna do. First, Johnson wants to buy $75 per share but Kravis increases it to $112. The war begins but luckily, the revenue was increased by 40% after six months of the acquisition. From this movie, I see the difficulties of merger&acquisition, the drive force for M&A, the advantages of it as well as the risks related to this process.

  24. I believe the best take away from this movie, although cliché, is “business is business.” As most have mentioned, the film centers on the potential of a leveraged buy out of RJR Nabisco. However, the motives of this buy out seem unclear. To one extent, Ross Johnson appears to be trying to benefit the company as their new “savior” of a product, the Premier, is in fact worthless. However, Johnson also happens to be eligible through this deal for one of the best monetary compensations that most people on the Board have ever heard of.

    However, his nemesis, Kravis, is attempting the same thing, only with plans of ousting Johnson from his position once the process is complete. The bidding war begins, and the movie ends with Kravis, with a slightly lower bid then Johnson, winning the leveraged buy out.

    What seems strange is the second highest bid wins. However, in reality, the goal of the Board in making the decision is not what is best for the company on this one date, but what is best now and in the future. Although Johnson appears to truly care about the company, as he leaves saying that he would have paid the company to keep his position, his greed (or the greed of the people that established the conditions of the deal to be more accurate) ending up losing him everything. Although “business is business,” business is not static, and must be thought of through what each action bears as a consequence, not just one action.

  25. This one is an interesting movie about Merger and Acquisition. CEO of Nabisco, Ross Johnson and Henry Kravis try to compete to each other. The bidding game begins and each side uses aggressive means to win. Mergers and Acquisitions are an important issue in the real business world, and this movie display how it work to us. The strategies of firms about Merger and Acquisition are a big topic and have to measure very carefully to make sure the risk and expected return will be in a reasonable degree to protect the stockholders.

  26. George DeVardo

    Barbarians at the Gate, brought up many issues involving mergers, acquisitions, and the general strategy that goes into buying out a company.

    Johnson’s decision to buyout the company after the smokeless cigarette flop proved to be an arduous task in the least. The movie showed that mergers and acquisitions are not strategies that can be implemented on a whim. They need to be carefully planned and kept quiet, because a large part of Johnson’s failure to acquire Nabisco was due to the fact that people found out and resulted in a bid war which he lost.

    However, the movie shows that even making a lot of noise about a merger can be beneficial depending on what your end game is, because even though Johnson did not get Nabisco, he still walked away with a huge settlement. So depending on what your strategy is you might want to spread some noise about a merger to benefit yourself depending on your position.

  27. Chris Bellinzoni

    There were several lessons learned from this movie that held many similarities for me to ‘The Pirates of Silicon Valley.’ The biggest similarity here being the need for knowledgeable business partners in any new venture. In the same way that it was beyond Steve Jobs to lead such a large company, it was beyond F. Ross Johnson to execute just a large and complex LBO without the proper assistance. My take-away from this is that when making such large, critical business decisions it does not pay to be penny wise and dollar stupid when choosing your allies. Johnson had the opportunity to work with the best, most powerful LBO manager (Henry Kravis) but didn’t like his terms so he went with the next best. The way this LBO played out also showed me the importance of not letting ego and emotions dictate decision-making. If Johnson had really kept his company’s best interests in mind and not his own he most likely would have gone with Kravis, achieved the LBO, and been able to keep his position.

  28. “Barbarians at the Gate” discusses the implications of a large market buy out, specifically that of Nabisco. The movie is based on CEO Ross Johnson and his attempt to make the company private. The reason for his sudden yearning to shake shareholders is the recent market failure of Premier – a smokeless cigarette. Although this attempt to go private seems to be starting off well, two people strongly opposed the leveraged buyout. The first is Henry Kravis and the second is George Roberts.
    In the beginning Ross Johnson attempts to work the leveraged buyout with Henry Kravis. Kravis becomes upset when Johnson turns to another firm to work out this deal. The two attempt to work out the issues, but are unable to because of personal feelings. This creates a bidding war which, in the end, Kravis wins. While this victory seems to be a final end to the situation, and moving Nabisco into the future, it actually creates a huge amount of debt for the company.
    Overall, this film portrays big companies and CEOs as warring giants. Also, it shows how difficult a leveraged buyout can be. Unforeseen circumstances can affect aspects of the deal as well as relations between firms. It gave a great picture of real world mergers and acquisitions, as well as how sensational a company can be (Nabisco making smokeless cigarettes??).

  29. Chiao-Yin Chang

    “Barbarians at the Gate “depict the largest leveraged acquisitions, in the late 1980s. KKR paid more than 300 billions acquisition of the RJR as the background. In the movie, I like Henry most. He is smart, calm and very intelligent. I learned about how acquisition and merger processes. It depends on cautious planned and carefully implemented the strategy in order to prevent the crisis occurring.
    Moreover, the film dialogue demonstrates the wisdom of Bankers and the intense atmosphere between them. You will difficult to imagine that these conversations from these elites but acting like barbarians.

  30. Venkata S Mudunuru

    This is the story of the fall of RJR Nabisco and how the biggest LBO at that time was undertaken. I was able to understand the metrics and dimensions that involve in M&A deals. I learned that the art of LBOs lies in how you structure your deal and how you get your funding. 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. However i was left wondering about few things after i completed watching the movie: The assessment of purchase price. Did the board sell the company cheap? Did KKR pay too much? How did the employees fare?

  31. I would definitely agree with Ryan that this movie is a crash course on Mergers & Acquisitions. This movie reminds me of Wall Street too. The movie shows that how a CEO is responsible for making profits or else he will be fired. In that fear he needs to make decisions. Garner also thinks of leverage buyout and buys the company himself since he had backed a smokeless cigarette which was not profitable. It explains us how the mergers and acquisition works. The main motive of a firm to merge or to acquire is to improve financial performance. The movie proves that fact.

  32. Serdar Sonmez

    What a great movie that explains how greedy people are, and they would do to fulfill their egos. This true story shows us Ross Johnson, CEO of RJR Nabisco, who climbed the ladder all the way up within 10-15 years. After failing smokeless cigarettes, he decided to take his company private. He thought that almost none of the board members would cause a problem in that transition, cause Johnson thought they were friends and they liked him, but in reality they weren’t and they didn’t like him. Henry Kravis, who knew alot more than Ross Johnson about the leveraged buyout, was against it. Eventhough knowing not too much about leveraged buyout Ross Johnson started bidding, and the war begun and of course in the end it was Kravis who won the war but the company ended up in huge debt.
    Afterall, watching the movie, im sure there are greater details in the book, you get a feeling of how M&A works and how greedy people within the board of directors can drive the companies out of the lanes.

  33. Shih-Ching Wang

    Recently, merger and acquisition become very common because of the financial crisis. Those firms facing the operating straits have to find external support to survive. Merger or acquisition is the way they use to solve this problem. They look for another company that is willing to take over their firms to go on their operating. Most merger or acquisition we know is good for companies and shareholders since companies can earn more profits after that. And it is also the purpose we learn from textbook. However, in the real world, there is full of hostile takeover anywhere. The reason that hostile takeover happens is probable the management, like Johnson, and other parties, like Kravis, want to have the right to control the company.
    In the movie, Johnson and Kravis both are interesting in RJR Nabisco, so they start a bid fight. Furthermore, they use leveraged buyout to collect capital, which would increase huge liabilities for the company. KKR is a notorious company for hostile takeover. It acquires a company by leveraged buyout, and then separates the company into several segments to sell. This means hundreds of employees would be fired. But, hostile takeover is not illegal. Once happened, it would be possible to damage employees. Thus, a manager should reduce the risk and protect company from this situation.

  34. As various people have previously posted, “Barbarians at the Gate” is a film that adds a humorous element to the fast-paced and intense environment and mergers and acquisitions. After a failed plan to promote smokeless cigarettes, Ross attempts a leveraged buyout to take the company private himself. However, he overestimates how much support he has and ends up in a bidding war when others get wind of the deal.

    Two things particularly struck me during this movie. The first was that Ross could go from from a paperboy to a CEO which is more or less the epitome of the “American Dream.” To start from square one with nothing but hard work, ambition and a dream and to end up the well known (and wealthy) CEO of a major organization is a path that every student in business dreams of.

    The second idea that struck me is the fact that even though Ross’s smokeless cigarettes flopped and he more or less failed at his attempt at a leveraged buyout, he still walked away with a settlement of over $50 million. At this point, I feel you have to ask, “why does he deserve this amount of money?” It seems to me that too many CEO’s and people in upper management positions are too often rewarded obscene amounts of money for failing at their jobs. When CEOs do well, they get paid well and when they do poorly, they walk away with a ton of money. It sets up an environment for management to take large risks and attempt the improbable because even if they fail they will still be rewarded with enough money that they won’t ever have to work again.

  35. Ariana Axelrod

    “Barbarians at the Gate” is a movie that exemplifies the concepts of mergers and acquisitions, as well as provides a clear example of a company that makes an attempt at a leveraged buyout. The movie focuses on Ross Johnson’s failed attempt to complete a leveraged buyout of his company RJR Nabisco. The flaw in his plan occurred when word got out that he was planning on buying out the stock of the company to make it private, and caused the beginning of a bidding war, that he inevitably lost to Henry Kravis. His desire to turn the company private was the result of the failure of another one of his projects, the attempt to create a smokeless cigarette.

    The movie clearly portrays the difficulties in successfully completing a leveraged buyout and shows the cut throat competition within the market. It also puts emphasis on the importance of confidentiality and knowing who to trust with any upcoming plans that may determine the fate of one’s company. In the end, however, Johnson still ended up with a large settlement of money despite his failed efforts.

  36. Keatan Fisher

    I found “Barbarians at the Gate” particulary interesting because of how it relates to the book I am currently reading “Den of Thieves.” Mergers and acquisitions are not illegal, however in “Den of Thieves” it tells how particular corporations and various partnerships were interwoven to help manipulate the stock of a company to force these hostile takeovers and the manipulation that took place is illegal. It just so happens that one of the leveraged buyouts mentioned in the book is the same as that that took place in “Barbarians at the Gate,” that of RJR Nabisco. In a few pages of the book it briefly describes how KKR, lead by Kravitz went to the company Drexel Burnham Lumbert Inc. to help them finance the takeover of Nabisco. This was very risky because at the time Drexel stood a very good chance of being indicted on many charges for supporting it’s top employee Michael Milken, who had basically committed everyt type of securities fraud that could be committed to be successful. However, Kravitz owed a great deal of his success to Drexel and Milken so he remained loyal to them. Anyway, the book did not mention anything about the failing of Nabisco’s product, the smokeless cigarette, nor the intricacies of the acquisition that took place, as the movie did. It was neat to see the connection.
    I would also like to make a comment on Brian’s posting. I also don’t understand the idea that CEOs receive such lavish severance packages for failing. If they fail they’re still rewarded, yet everybody else feels the effects of their failure, but them. It is selfish of top management, but it seems today that everything is about self-interest. Even a large part of the new bail-out that’s taking place in the economy now deals with giving large bonuses to CEOs so they can come to the rescue. Well, in my opinion, top management should have already been conducting practices that would have deterred failure to begin with. Paying them more money not only seems ludacris to me, but I really don’t understand how it’s going to help our crisis.

  37. Daniel Pokidaylo

    Barbarians at the gate was about the leveraged buyout of RJR Nabisco, which was a conglomerate. As we discussed in class, conglomerates are so diversified that it is hard to see whether or not to add that one more industry or product. RJR Nabisco was convinced that the smokeless ciggarrette would not do well, so the CEO (Johnson) wanted to take the company private. The film shows the harshness of the business world, and the bidding war for the LBO of the company, and how debt can play a tough role in a company.
    I enjoyed the film (although difficult to find) because, as a finance major, I enjoy watching battles of large corporations such as shown in this movie. Companies are always battling for position amongst their competition, and people will lie and try to cheat their way to the top just to get that slight advantage. Movies such as “Barbarians at the Gate,” and “Boiler Room” show people in this light, however, I personally haven’t seen anything such as this so its interesting to always hear about it. I would assume the battle for Wachovia was an angry one between Citigroup and Wells Fargo. Hopefully in the future I will be in the position to see first hand the dealings of major corporations and become 1% as successfull as KKR.

  38. Michael Buxbaum

    “Barbarians at the Gate” is a film that recounts the events surrounding the leveraged buyout of RJR Nabisco. CEO Ross Johnson plans to take his company private due to news that the company’s smokeless cigarette, Premier, would be a market failure. This movie gives good insight into the steps taken and the difficulty in attempting a leveraged buyout; however we see how Johnson mismanages this attempt. The more interesting aspect of this movie is the power struggle that develops between Johnson and Henry Kravis, who tries to take over the company on his own. Another issue brought up is confidentiality and knowing who you can trust in these circumstances. Overall, I enjoyed viewing the struggle from an insider point of view, rather than the outside in which we see most financial struggles, such as the recent disaster on Wall Street.

  39. this movies is based on the true story of the RJR/Nabisco Company takeover. Ross Johnson is a workaholic. He works very hard to head up the Nabisco Company for many years. The company has invested millions in a new product,but it fails. Ross decides that he will offer to buy out the company. Now, everyone jockeys for the position as the multi-million dollar company goes up for bid.

  40. “Barbarians at the Gate”, recounts the biggest leveraged buyout in history– RJR Nabisco in 1988. The movie told the story of the fight for RJR Nabisco between its CEO F. Ross Johnson and Wall Street investment banker Henry Kravis. After seeing how others made a ton of money doing LBOs, Johnson wanted to do one himself by taking RJR Nabisco private. However, Henry Kravis intends to force Johnson out and take over RJR Nabisco on his own.
    Upon viewing this film, I was able to get a small glimpse into the hostile world of corporate life in the mid to late 1980’s. At first glance I was astonished by the lack of morals and ethics within this community, but upon further investigation I deduced that this incredible greed is what drove the economy. Without this greed, corporate America would have never grown to their immense size.

    From another point of view, I can see, in today’s world, merger and acquisition becomes much—used strategic options. For example, recently IBM is willing to spend $6.5 billion to acquire Sun Microsystems. This merger will help centralize the resources of the two companies and bolster IBM’s heft on the Internet, in software and in finance and telecommunications markets. It also will gather the assets of both companies to form a new bigger competitive company. But this merger may bring another run of layoff or managers and employees at the acquired company may resist new management styles and operating procedures. It can bring both advantages and disadvantages.

  41. The movie told the story of the fight for RJR Nabisco acquisition between its CEO F. Ross Johnson and KKR’s Henry Kravis. After seeing how others made a ton of money doing acquisions, Johnson wanted to do one himself by taking RJR Nabisco private. After a few rounds bid, Johnson won the final bid. However, the borad of dirctors took the bid from Kravis, because they found out Johnosn had the secret deal wiht his partner which would give Johnson himself a big part of the ownership.
    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 executives were corrupt at the top.

  42. The movie showed the behind the scenes action of the corporate world and a lot about human nature. A common theme even today is how management is rewarded by performance of stock price rather than long-term growth. Upper management is elected to look out for the best interest of the stockholders but yet we see how Ross Johnson outrageously spends company money. There was one scene when the two private jets were flying next to each other and the executives were talking on the phone. It is only human nature to look out in the best interest of yourselves rather than anyone else. Ross Johnson foreseeing the failure of the new Premiere cigarette, he wants to buyout the company through the largest LBO in US history. He wants this solely to take control of the company and continue the perks he is receiving. He acts with integrity stating he wants to look out for the devoted employees but in reality he only cares about his wallet. Kravis who suggested the idea wants to protect his credibility and following his ego he competes with Johnson for a company he doesn’t need. By making a public company private, the main stakeholders now can retain all the profits. But they also develop substantial debt through complicated financing that none of them seem to understand. It is astounding how actions of a few greedy people can have a dramatic impact on other people. Rather than employing a LBO, which Johnson does not fully understand, he should focused more on diversification and other business lines. Especially when the cigarette industry is facing incredible distress from government and health advocates. Overall I feel the movie does seem like an accurate portrayal of how corporate greed is rampant in our society. With examples like executive at Merrill Lynch spending almost $1 million to renovate an office bathroom.

  43. Katherine Han

    RJR Nabisco is a cigarette company about to introduce the newly developed smokeless cigarette called Premier. After spending millions of dollars investing in this product, it turns out to be a failure. After the CEO of Nabisco, F.R. Johnson taste the Premier, he comments “it taste like shit, and smells like fart.” He immediately foresees that this failure of the new product will backlash his position as CEO, and decides to make the company private by buying out all the shareholders’ stocks very hastily. In this process of LBO (leveraged buyout), the movie well portrays how unethical and self-centered the people in the Wall Street in the 1980s are. The unethical mindset is well described when Johnson tells his wife, “there are 3 rules of Wall Street; never tell the truth, never play by the rule, and never pay in cash.” The battle for the big bucks starts when Henry Kravis steps into the LBO and the price war strikes up to $120/share while it started out at $75. As Johnson faces reality, there were no secrets when people are involved with nine zeros in their hands. In the long shareholders’ board room decision making process, Johnson loses and Kravis wins the deal. Although Kravis won and stockholders walked out with billions of dollars, are they all winners? According to the movie, it says “by end of 1980’s American businesses piled up about 1 trillion in debt.” As Kravis mentioned in the movie, is debt really tightens the company in the end?

  44. “Barbarians at the Gate” is based on the story of the clash for the RJR Nabisco Company between CEO Ross Johnson and KKR’s Henry Kravis, a wall-street investor. The movie also portrays the vital and detailed steps taken In order to produce a leveraged buyout. Ross Johnson developed a new product, Premier, a smokeless cigarette. News about Premier is negative and in order to save Nabisco, he tries to convert the company into a private firm. Henry Kravis attempts to force Johnson out and become the sole owner of Nabisco. The movie showed how unethical and corrupt corporate business was done in the 1980’s. This movie also shows that corporate greed in most firms will eventually win-out in the long term in companies. It was an enjoyable movie overall and helped me understand the concepts associated with the leveraged buyout.

  45. Jeffery Walburger

    Barbarians at the Gate was a very interesting movie, in that if the two competitors that wanted to take over RJR Nabisco could have reached an agreement they couldn’t have settled a buyout price at 70 dollars a share, but instead of agreeing to have a joint venture it drove the price up over 100 dollars a share. On the other hand I could understand why the CEO didn’t not want to take the offer from KKR because just like the Microsoft and Yahoo add we read in class, someone was actually going to be taking someone over it wasn’t going to be a real joint venture, KKR would run things they way they wanted to be run, and for lack of a better term, the CEO would have been turned into a puppet. Mergers and acquisitions can be beneficial in the sense that when two companies are combined the new company’s competitiveness can be enhanced in any of several ways including; lower cost; stronger technological skills, more or better competitive capabilities; etc. But unfortunately when you discuss about mergers/acquisitions one must ask themselves is this better for me, who is going to be in control of the company, and am I going to like the decisions this new owner makes? This is precisely what happened in Barbarians at the Gate, two people couldn’t agree so they decided to let the shareholders decide.

  46. Lindsay Jean Stradley

    The movie Barbarians at the Gate showed what can sometimes happen when companies attempt to enter into mergers and acquisitions. In this case the company KKR wanted to take over RJR Nabisco. In some cases as we have learned in class mergers and acquisitions can be very beneficial for both companies involved. It can help them combine and share their most valuable resources and core compentcies. In times it can help both companies to drastically cut costs when they become one. However, as was seen in this movie, sometimes where mergers are looked at more like an unfavorable acquisition, the transition is not smooth. In this case the CEO and personale at RJR Nabisco felt as though they were being taken over and their roles would be drastically reduced and overlooked once the new company took over. Often in situations like this where one company feels taken over, it can drastically reduce company morale and lead to an uneasy future.

  47. Sean Galloway February Post

    “Barbarians at the Gate” was a great example of everything we have been discussing in class with regards to mergers and acquisitions. In the film three very different competitors wanted to take over RJR Nabisco. The film did a wonderful job of depicting the greed, narrow- mindedness and stubbornness that can plague a merger or acquisition. After all, the buyout went from $70 per share to upwards of $100 per share.

    “Barbarians at the Gate” reminded me an awful lot of the Microsoft case in class in that a “merger” is almost always a misnomer. There will always be winners and losers. So, that being said, I would argue that mergers and acquisitions is more like just acquisitions because at the end of the day someone will always have to decide who will stay and who will go and who will keep or receive the power.

  48. Gregory McGuire

    “Barbarians at the Gate” shows us an inside look at acquisitions and leveraged buyouts. The movie shows CEO Ross Johnson attempt to take over RjR Nabisco after the project his company spent millions on, the premier cigarette, fails. To avoid the wrath of the shareholders he decides to do a LBO and take over the company himself. The problem for Ross Johnson is that Henry Kravis, a Wall Street investor wants to acquire the company also. In terms of acquisitions the movie shows how both Henry Kravis and Ross Johnson enter into a bidding war to take over the company. This creates a situation in which Ross Johnson losses and leaves Henry Kravis winning. I’m sure the shareholders of Nabisco were happy given this bidding war caused for a higher stock price. In terms of what we discussed in class about acquisitions, the movie showed the process can be ugly with side deals and such.

  49. Gaston Depusoir

    The movie Barbarians at the gate provides an in depth look at one of the most historic M&A transactions in History. The LBO of Nabisco is a deal that’s up there with the AOL-Timewarner and Exxon-Mobil. I think a good point of Barbarians at the Gate is to give a contrast of the economic conditions and the type of transactions that can occur during them. During the time period when the Nabisco transaction was occuring there was an abundance of leverage that provided debt for the deal. In the current economic conditions deal of that size are very hard to come by. For someone that’s interested in Investment banking this aspect of the movie was very interesting to me.
    I also think that this movie provided an in depth portrayal of the key players behind the scene in the finance industry. It really drove the message home to me that it’s not what you know, it’s who you know.

  50. Katherine Higgins

    This movie (“Barbarians at the Gate”) mostly left me with 2 main points. One that, as discussed in class ‘Mergers’ are really never true mergers. No 2 companies are completely evenly matched, and one always is the dominate player. The second message is greed. As we have seen in the more recent past with cases with Enron, the lesson has not been learned- nor will be ever be. Greed is what makes the stock market tick- for either good or bad. RJR (aka F. Ross Johnson) broke ethical and moral (illegal knoweledge – like Martha Stewart’s case )boundaries to ‘save’ themselves from losses. As shown in the film, their plan backfired (as such cases usually do) and they wound up hugely in debt.

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