F. Ross Johnson, the chief executive officer of RJR Nabisco whose takeover attempt of the company in 1988 introduced society to leveraged buyouts, has died at the age of 85.
Ken Sweet of the Associated Press had the news:
In October 1988, Johnson and a group of investors proposed taking Atlanta-based RJR Nabisco private, which started a month-long fierce bidding war for the company among Johnson’s group of investors, Wall Street banks and major private equity companies, including Kohlberg Kravis & Roberts.
KKR eventually won the bidding war, paying nearly $25 billion or RJR Nabisco. It was the largest private equity deal in history at the time and helped bring private equity firms, once a small part of Wall Street, into mainstream knowledge.
Wall Street’s fierce bidding war, as well as Johnson’s notoriously opulent lifestyle, was dramatized in the book “Barbarians at the Gate: The Fall of RJR Nabisco,” a best-seller later made into a made-for-TV movie. Johnson was depicted as an example of corporate greed and vanity, with RJR Nabisco owning several corporate jets for Johnson’s private use, and numerous country club memberships paid for by the company.
And even though Johnson failed to take RJR Nabisco private, he walked away with an estimated $50 million in salary and bonuses as a golden parachute. Johnson never ran a major company after he left RJR Nabisco and effectively retired to Florida.
Robert D. Hershey Jr. of the New York Times noted Johnson’s controversial operating style:
He also oversaw construction of what Mr. Burrough and Mr. Helyar described as the “Taj Mahal” of hangars for RJR’s expanded “air force” of 10 planes and a separate building from which the company’s 36 corporate pilots ferried celebrity friends like Jack Nicklaus and Frank Gifford. Mr. Gifford, as a sportscaster, would hitch rides home from televising football games.
Mr. Johnson relished his lush job, but he soon grew restless again. Unhappy with RJR’s languishing stock price, which was depressed by mounting public concern about the health hazards of tobacco, he assembled a group of eight company managers and told a shocked board that they wanted to buy the food and tobacco conglomerate themselves.
Although their offer of $75 a share was about $20 above the market value at the time, it was shown to be a lowball figure when Kohlberg Kravis Roberts joined the fray four days later with an offer of $90.
“It made K.K.R. look like saviors,” someone involved in the process told The New York Times when the dust had settled. “It started to create a feeling of ‘what’s going on here with the management?’”
A public relations bombshell went off when The Times disclosed a financial arrangement under which Mr. Johnson and a small number of his executives could each reap profits topping $100 million. When he responded that it was not unusual for a buyout group to be rewarded with 20 percent of the company, the criticism intensified.
Richard Craver of The Winston-Salem Journal examined Johnson’s legacy in the North Carolina city:
Even as local civic and elected officials have decried Johnson’s actions the past 28 years, they say the community’s response came to symbolize its transition from dependence primarily on three paternalistic corporations — counting Hanes Corp. and Wachovia Corp. — to a more diversified corporate and overall economy.
“While (Johnson) angered many in Winston-Salem with his actions and description of our community as bucolic, it probably was the wake-up call we needed to compel us to develop a new focus on economic development,” Gayle Anderson, president and chief executive of the Winston-Salem Chamber of Commerce, said Saturday. Anderson herself is a former employee of Reynolds.
The sale of RJR Nabisco just happened to be the most jolting of several major body blows to the local economy in the 1980s to early 2000s.
Tens of thousands of local jobs also were eliminated when Hanes, McLean Trucking Co., Piedmont Aviation, Western Electric and Wachovia were either bought, moved or closed.
