Where's the Limit? Ross Johnson and the RJR Nabisco Takeover Battle

The biggest takeover battle in history raises questions about greed, debt and the well-being of American industry

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The date was portentous: on Oct. 19, precisely one year after the stock market crashed, the chief executive of RJR Nabisco was the host of a lavish meal at Atlanta's Waverly Hotel. Ross Johnson's guests had come to expect such treatment. A brash and hard-driving manager with a fondness for fine living, he liked to treat RJR Nabisco's board members to an elegant evening out before the next day's regular meeting.

On this night, however, Johnson's purpose was not just to be convivial. Declaring that he had tried everything he could during the past two years to boost RJR Nabisco's stock price, Johnson said he had found a solution: he and his fellow top managers would take complete control of the company in a leveraged buyout (LBO). Johnson would then sell off some of the company's food brands and run the remaining divisions as a private company. Surprised that a chief executive would initiate a raid on his own company, the directors nonetheless allowed him to mount what would be the largest takeover ever.

But the directors -- and much of the public as well -- were soon shocked to read news accounts reporting that Johnson's plan would enrich him and seven of his top executives beyond the dreams of Midas. In exchange for $20 million they would put up for an 8.5% stake in the new company, Johnson and the seven other executives would see the value of their investment jump to $200 million when the sale was completed. That was only the beginning. By doing some simple arithmetic, critics of the plan calculated that the eight men's holdings, which were scheduled to grow to 18.5%, could be worth $2.6 billion within five years if they turned RJR Nabisco into a leaner and more profitable enterprise. Johnson's share alone would have been worth $1 billion.

Swamped by a wave of resentment, Johnson rushed last week to reassure the RJR board that he had intended all along to share the newly created wealth with the 15,000 employees who would remain after the breakup. "I wasn't going to take 18% of this company for seven people," Johnson told TIME in his first interview since the buyout offer. "If I'd known it was going to be in the newspapers, I would have said, 'Look, there's going to be 15,000.' "

Even as Johnson backed away from his huge initial stake, rival bidders rushed in to get theirs. The competing offers turned the fight for RJR Nabisco, whose brands range from Animals Crackers to Winston cigarettes, into the brassiest and potentially most damaging brawl in Wall Street history. By last week three groups were locked in a titanic struggle for the company (1987 revenues: $15.8 billion), and the offering price has climbed above $26 billion -- more than the gross national product of Peru or Portugal and twice the sum that Chevron paid for Gulf Oil in 1984 in the largest previous merger. The ordeal turned into a feeding frenzy for hangers-on as well: hundreds of lawyers and investment bankers involved in the bidding stand to earn a total of as much as $1 billion for their expertise.

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