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In October 1988 RJR Nabisco CEO F. Ross Johnson, with Shearson Lehman Hutton, proposed taking the company private at $75 a share, roughly $17 billion, after its stock had lagged despite strong cash flow. The offer effectively put the company up for sale, and Kohlberg Kravis Roberts countered at $90. A special board committee then ran an auction that KKR won at about $109 a share, roughly $25 billion, even though Johnson's group had nominally bid slightly more.
The New York Times reported the terms of Johnson's deal with Shearson, which gave a small management group a stake that could be worth hundreds of millions of dollars, plus control over the board. The coverage turned public and director opinion against him, including a Time cover calling it 'A Game of Greed.' The exposed self-dealing hurt him with the board as much as his bid price did.
When a CEO bids to buy his own company, he stops being the shareholders' agent for getting the highest price and becomes a buyer who wants the lowest one. He also knows far more about the company than any rival bidder. That is why boards form independent special committees and insist on a competitive auction, and why the management group's first offer is best read as a floor.
In an LBO, the buyer pays with debt secured by the target's own assets and repaid from its cash flow, so a steady, cash-rich business like tobacco can support a very high price. The same debt then requires asset sales and cost cuts to meet interest payments. In effect, the company pays for its own purchase.
The book documents RJR's spending under Johnson: a fleet of corporate jets in a lavish hangar, celebrity athletes on retainer, and country club memberships. These details illustrate the kind of management spending that buyout firms argued debt would discipline, a rationale the book reports as part of the case for LBOs rather than settling it.
The authors show that the bidding escalated partly because the people involved wanted to win. Personal rivalries shaped the contest: Henry Kravis felt Johnson had shut him out, and Shearson's Peter Cohen needed a trophy deal. Pride and fear of losing face pushed the price up, and the book frames this as the winner's curse at work.
Both final offers mixed cash with junk securities such as payment-in-kind debentures, which pay interest in more paper instead of cash. Their market value was uncertain, and the 'reset' feature was meant to guarantee they would trade at a stated price. Because each side's paper had to be judged by bankers hired by the board, the headline numbers could not be directly compared. That gave the board room to pick a winner on grounds other than price.
The board's special committee, led by Charles Hugel, set bidding deadlines, sealed-bid rounds, and a 'level playing field' of equal information. Rules about extensions and last-minute revisions decided the result as much as the money did. The book shows that in an auction, whoever controls the process strongly influences who wins.
Investment banks, lawyers, and junk-bond financiers such as Drexel Burnham collected hundreds of millions in advisory, financing, and commitment fees tied to doing and financing the transaction, regardless of how the company fared afterward. The book lists fee totals to show who profited from the deal whatever its later outcome.