Barbarians at the Gate (93 page)

Among those who didn’t survive the era’s end was Peter Cohen, who agreed to resign as Shearson’s chairman under pressure in January 1990. Relations between Cohen and Jim Robinson, already tense after the RJR Nabisco fight, deteriorated rapidly in 1989 as Shearson floundered through a number of setbacks, including a widely unpopular restructuring that led to the resignation of its president, Jeff Lane. On publication of this book, Cohen was surprised to learn details of Linda Robinson’s secret role negotiating with Henry Kravis. The disclosure came at a sensitive moment for Cohen, who felt it undermined his authority, and led to the final breach with the Robinsons. Afterward, he told a number of people that this book portrayed him unfairly and that Jim Robinson was party to every decision he made in the Nabisco deal, including negotiation of Ross Johnson’s benefits package.

Ted Forstmann, of course, felt thoroughly vindicated by the collapse of the junk-bond era. He was the hero of a series of laudatory press clippings, the lonely voice in the dark who had triumphed over greed. His advisers told Forstmann to cool it, and to an extent he did. But the pull of righteousness was often too much, and Forstmann lapped up the attention, which, of course, he deserved. The final irony came in early 1990 when, as Henry Kravis scraped to keep RJR Nabisco together, Forstmann began doing deals again. Not many—just a deal here, a deal there—but it was more than anyone else in the LBO business managed. With junk bonds out of fashion, Forstmann’s “real money” returned to the fore. For the first time in years, Ted Forstmann was the toast of the town.

In Atlanta, Johnson took perverse pride in the slowdown. “I scared them all back into the closet,” he said, giggling, in May 1989. “Eighty or ninety percent of companies had LBO studies. Now I have people telling me, ‘Jesus, Ross, we burned every file we had.’”

Unlike others, Johnson neither brooded nor looked back. Jobless, he moved into offices in another building at the Galleria, where he shared a floor with a country music radio station. His new enterprise, a partnership with John Martin, was called RJM Associates. The two pals were always hard-pressed to say exactly what RJM Associates did, though it
seemed to involve giving ad hoc advice to their friends for a dollar-a-year fee. (With an $18.2 million golden parachute of his own, Martin no more needed the income than Johnson.)

Johnson did invest with some old pals in a venture that bought Nabisco’s Far East operations. But mostly he enjoyed himself. Between golf and ski vacations, Johnson puttered around with the seven corporate boards he was on. He went to movies with Laurie and continued the vigil for son Bruce, who emerged from his coma but remained in a trauma clinic, unable to speak. He has begun to communicate through spelling. “We’re quite encouraged,” Johnson said in the summer of 1990.

Though Johnson professed to be delighted with the semiretired life, friends doubted he would stay that way. For one thing, it wasn’t in his nature to fly commercial. It might take a rehabilitation period for his reputation, friends said, but Ross Johnson would be back. In words that could be his epitaph, he didn’t deny it. “I’m always available,” he said, “for change.”

For all the upheaval, few in Winston-Salem blamed Kravis. Instead it was Johnson they continued to villify. Only a few took a broader view. “If Ross Johnson hadn’t existed,” said Gene Hoots, RJR’s former pension manager, “it would have been necessary for Wall Street to invent him.”

In a sense it had. Johnson was a product of his times, as surely as R. J. Reynolds was of his. The Roaring Eighties were a new gilded age, where winning was celebrated at all costs. “The casino society” Felix Rohatyn once dubbed it. The investment bankers were part croupiers, part alchemists. They conjured up wild schemes, pounded out new and more outlandish computer runs to justify them, then twirled their temptations before executives in a “devil dance.” That, at any rate, is what Johnson took to calling it. Depending on one’s viewpoint, the “dance” Johnson initiated at RJR will go down as either the high point or the low point of an era.

It wasn’t an accident that RJR Nabisco should provide that moment. In its final decade Reynolds had become less a great company than a great dream machine. Its torrent of tobacco money allowed egos to run wild and fantasies to become true. Paul Sticht could walk with kings. Ed Horrigan could live like kings. Directors could be treated like kings.

Hoisted onto the auction block, the company became a vast prism through which scores of Wall Streeters beheld their reflected glories. Jim Maher could restore First Boston’s greatness. Ted Forstmann could pursue
his final jihad. Peter Cohen could go from administrator to merchant-banking prince. Henry Kravis could have an empire’s crowning touch. John Gutfreund could get the left side of the ultimate tombstone.

The founders of both RJR and Nabisco would have utterly failed to understand what was going on here. It is not so hard, in the mind’s eye, to see R. J. Reynolds and Adolphus Green wandering through the carnage of the LBO war. They would turn to one another, occasionally, to ask puzzled questions. Why did these people care so much about what came out of their computers and so little about what came out of their factories? Why were they so intent on breaking up instead of building up? And last: What did this all have to do with doing business?

This kind of reception was the furthest thing from our minds when we set out to write a book in 1989. Our primary goal, in fact, was simply to see whether we could actually
write a book
; neither of us had ever tried it before. Nor was
Barbarians
exactly a prize publishing executives were fighting to handle. Of the half dozen publishers we approached, in fact, precisely one, Harper & Row (now HarperCollins), had the slightest bit of interest. The newspapers had been saturated with the RJR story for weeks. Who wanted to read more?

As reporters for the
Wall Street Journal
, we strived to imbue
Barbarians
with the standards of excellence and accuracy we learned at the paper. Indeed,
Barbarians
would not have been possible without the encouragement—and the eight months of unpaid leave—that its editors, Norman Pearlstine and Paul Steiger, gave us.

That October, when the RJR story broke, Bryan was the
Journal
’s reporter on the Wall Street mergers and acquisitions beat; based in
Atlanta, John covered the company itself. Together we covered the twists and turns of the RJR fight for six long weeks. It was only when the struggle was over, and we agreed to write a book, that we actually met each other. John held up the infamous
Time
magazine cover of Ross Johnson so that Bryan could identify him at the Atlanta airport.

We’re often embarrassed to admit the research and writing of
Barbarians
occurred in eight short months, from January to August 1989. It was a manic period. From an un-air-conditioned apartment in the Park Slope section of Brooklyn, Bryan rode the subway into Manhattan to hold as many as six interviews a day; we believed strongly that all interviews should be done in person. At night he would return to collate and “write up” his interview notes, sometimes donning swim trunks and a T-shirt in the summer heat. John had more traveling to do, shuttling between Atlanta, North Carolina, and New York to assemble the story of Ross Johnson’s ascent. We worked separately except for the crucial interviews with Johnson himself, informal marathon sessions held in Atlanta and Manhattan over pizza and soft drinks.

As we worked on the book, we worried that RJR would be eclipsed by some even bigger and wilder deal. Between corporate raiders, LBO artists, and junk-bond financiers, the whole 1980s business world had gone mad. The barbarians’ next assault could reduce RJR from epic to footnote. (That’s why Harper wanted the book so fast.) We braced for that black day, which never came.

The battle for RJR, it turned out, both defined and ended an era. KKR’s winning bid of $25 billion stood for nearly a decade as the biggest business deal of all time. Several factors combined to tamp down the size of deals for several years. The great money machine behind LBOs—junk bonds—sputtered and for a time virtually stopped. Mike Milken went to jail; Drexel Burnham went bankrupt, and, in the early-’90s recession, battered overleveraged companies gave leverage a bad name. Henry Kravis ceased stalking big game, preoccupied with the care and feeding—and debt service–of RJR. Other stars of 1980s Wall Street—and combatants for RJR—also overdosed on hubris and faded. John Gutfreund was ousted as chairman of Solomon Brothers in 1991, after a treasuries trading scandal. His president, Tom Strauss, also resigned and joined Peter Cohen in obscurity at a hedge fund. Others became boutique bit players, too, including Tom Hill, at Blackstone
Group, and Steve Waters at a European private equity fund called Compass Partners.

About the only
Barbarians
figure whose star rose was Steve Goldstone. The onetime attorney to Ross Johnson eventually became CEO of RJR Nabisco. But even Goldstone’s job amounted to presiding mainly over the demise of the once-mighty company. In 1999, he sold Nabisco to Phillip Morris, divested RJR’s international tobacco business, and brought the company right back where it started from: a U.S. tobacco company based in Winston-Salem, North Carolina. Kohlberg Kravis exited RJR soon thereafter, with humble returns.

But even as Wall Street’s gunslingers of the 1980s drifted off into the sunset, they ushered in the dawn of the even wilder decade of the ’90s. The CEOs of America, at first shocked and horrified by the barbarians at their gates, ultimately emulated them. They’d learned from RJR what fabulous riches were there for the taking. They began to press for
their
piece of the action.

“CEOs learned two things from LBOs,” says Dick Beattie, who remained in the midst of major deals through the ’90s. “First, the way to build significant wealth was through equity ownership, not salary and bonuses, and second, you didn’t need to do any LBO to build equity. You could give yourself stock options.”

With that currency, the CEOs of the ’90s reaped sums to make even Ross Johnson blush—and make greed as commonplace on Main Street as Wall Street. That grasping spirit extended even to once-staid accounting firms, which became more like croupiers than auditors. “It was the investment bankers,” growls Paul Volcker, the former Fed chairman who made a failed effort to rescue scandal-plagued Arthur Andersen. By the time he arrived in early 2002, the big swinging dicks of Wall Street had thoroughly infected the green-eyeshade crowd. Recounts Volcker: “The accountants felt like, ‘We’re as good as they are and we’re doing all the work.’ The general atmosphere was, ‘Money is out there for the taking.’”

Call it “the triumph of the barbarians,” and chalk it up as one good reason this book remains relevant. The infamous CEOs of today like Dennis Kozlowski and Bernie Ebbers are really Ross Johnson’s modern equivalents. They evolved what he pioneered: the CEO as self-interested no-company man; the CEO as daring swashbuckler and
bold expropriator of corporate assets. They merely operated on a far grander scale, for, in the bull market and tech bubble of the ’90s, the stakes and bucks were so much greater. Even nobodies like Henry Samueli and Henry Nicholas, cochairmen of a company called Broadcom, reaped $800 million apiece, cashing out stock in their company while telecom was still hot. Compared to that, Ross Johnson’s once-outrageous $53 million golden parachute is parsimonious.

But even if the events in
Barbarians
have now been surpassed in terms of dollars, it remains unmatched for dramatics. And not because of the skills of the authors, Lord knows. It’s because for those six weeks in 1988, when a new set of business barons vied to own a huge company and to be top dog on Wall Street, the planets were so perfectly aligned. The zeitgeist of an age was on full display in the war for RJR: raw emotions and colliding egos; improbable plot twists and even more improbable characters. Other authors have done masterful jobs with business sagas—David McClintick’s
Indecent Exposure
is the template for us all—but none have been so blessed with raw materials. We had investment bankers wolfing down Milk Bones and sprinting through Midtown Manhattan, bearing last-minute bids. We had a CEO whose dog rated a corporate jet and whose life motto was: “A few million dollars are lost in the sands of time.” We are forever grateful to them all. You couldn’t make this stuff up.