Barbarians at the Gate relates the story of a huge, and achingly complex, private equity / leveraged buyout mega deal. The cast of major figures in this saga runs to hundreds, if not thousands, and the two journalists who authored this book do an admirable job of conveying a sense of these figures alongside the broad narrative of the deal itself. The book is extremely thoroughly researched in terms of the personnel involved; the pair have conducted extensive interviews with all the major movers and shakers. Indeed, the book, for me, was at its best when describing and portraying the main characters involved. Background and context for each character is rich, informative and engaging including summaries of their childhood, education and family life, brief business biographies and anecdotes exemplifying their manners and modus operandi. These include many of the titans of the, now vast, private equity business in the US; Henry Kravis (pp130-1), his cousin and partner George Roberts (pp132-3), their former mentor Jerry Kohlberg (also chapter 5, pp128 onwards) and Ted Frostmann (pp235-6). Investment banking bigwigs like Bruce Wasserstein (First Boston then Wasserstein Perella) and Peter Cohen (p155, Shearson), corporate high flyers like Ross Johnson (RJR Nabisco) and Jim Robinson (p186-7, American Express) and countless other lawyers, advisors and board members. The cast is really too numerous to be able to keep a clear picture of the anyone apart from the recurring lead roles but this can hardly be blamed on the authors and the book is well indexed for anyone wanting to make reference to particular individuals. Indeed, the vast army of people involved amply demonstrates the grotesque fee orgy that went on around this deal! Total fees are estimated at one point at close to $1 billion for a $25 billion deal. Corporate cultures are also skillfully described and colourfully rendered including Standard Foods, Nabisco, RJ Reynolds, KKR, Shearson, Drexel, Salomon and many others.
However, while there is undeniable merit in the portraits of both individuals and institutions the book does sacrifice clear detail about the mechanics and chronology of the deal in favour of more dramatic, albeit more enjoyable and readable, material. Corporate shindigs, the opulence of boardrooms, the fabulous art collections of private residences and confidential drinking sessions are all described in minute detail with great relish. Private meetings and the home lives of the major players are imagined and dramatised with regularity but the nuts and bolts of the deal never receive the same exhaustive treatment. To be sure, there can be justifications for this; the subject matter is dry and difficult to summarise, most readers are probably more interested in a semi-dramatised account, the authors are journalists not financial professionals and for this last fact I’m very grateful as the book was readable! Nonetheless, I often found myself wishing there was a section dedicated to explaining the financing, and other technical aspects of the deal, in pellucid detail. This is missing from the book and I feel it would have benefited from a section briefly dissecting the three offers in terms funding and the breakdown of equity, leverage and types of debt employed. For example, Forstmann finds his ‘$3 billion sandwiched between layers of junk bonds’ which to me is incomprehensible as debt, to my mind, is put on top of equity so that it is never quite clear what kind of capital structure this bid has. Furthermore, discussion of the Frostmann bid mentions his firm ‘receive[ing] senior debt rather than junior debt’ but it’s not clear why the acquirer is receiving any debt at all from the firm it has acquired. I imagine that as well as contributing equity Frostmann also agrees to buy some of the debt issued to pay for the acquisition but it is precisely these kind of details that the book leaves unexplained and unattended. Equally, the ‘reset’ clause on the debt offered to RJR shareholders as part of the KKR bid seems to amount to a guarantee that it will never trade below a certain level, which, in practical terms, seems to remove many of the advantages of using debt as large amounts of capital would have to be raised or set aside to fulfil this promise. In the end, it seems KKR do have to put more capital into the deal because of this clause but the workings of this are never clearly or satisfactorily explained for me. The epilogue and afterword, while making some interesting points about the operating fates of RJR subsidiaries post acquisition, raise even more questions about the financial engineering of the deal. KKR ‘ran up the white flag, swapping its RJR stock for shares in another company it controlled, Borden’ - I have simply no idea how this would work and this is all the explanation offered! Did they sell the stock and then buy more Borden? Did a minority at Borden swap their stock for RJR? It must a have been a sizeable minority stake to be worth what I assume must have been the majority of RJR? No clues are offered in the book! Also, after KKR’s unexplained exit when the company is being run by Goldstone, a former lawyer for the management group’s buyout, there is mention of RJR’s stock ‘rising 20%’ following an interview he gives on legal liabilities in the tobacco business. This indicates the group must have been relisted, which it was in 1991, but this is the only mention made of it! This seems an extraordinary omission not to cover the group’s reentry to the stock market but, again, no further information is offered.
Of course, the authors can hardly be expected to cover each and every aspect of such a mammoth and byzantine deal. It is popular book and not a technical dissertation on the financial structures employed. Equally, I feel they do a fine job of describing the characters involved, the cultures of the institutions and the huge amounts of ego and greed involved in the deal. However, if these are the strengths of the book then I feel that a lack of detail on the financial structures involved and a slightly unclear technical narrative are the weaknesses. Other corporate histories I have read authored by two people have also suffered from some of these same perceived faults so I wonder if, in the process of dual authorship, some of these grittier, less glamorous topics get lost between the two. I also wondered if, reading this book at some 30 years removed from the events, I simply need more explanation than a contemporary reader to whom the events would have been current. The authors were clearly deeply involved in the contemporary coverage of this rigamarole and, perhaps, as such didn’t share my historically detached perspective.
It was an incredibly thoroughly researched and highly readable account dealing with a hugely complex topic. Strong on anecdotes, opinions, the character of individuals and the culture of institutions but a little weak on the financial technicalities.
