Barbarians at the Gate

Key Takeaways

Under Consideration — to be added.

Connections

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Highlights

Roam capture metadata — Author: Bryan Burrough John Helyar · Reading Status: Books Read · Source: https://medium.com/@kwharrison13/2018-in-books-part-ii-c4f812a37bd5 · Recommended By: Craig Hardy · Tags: #Books

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• “Everyone knew LBOs meant deep cuts into research and every other imaginable budget, all sacrifice to pay off debt. Proponents insisted the companies for us to meet steep debt payments grew lean and mean. On one thing they all agreed: the executives who launched LBOs got filthy rich.”
• “Tony Peskett, who imbued Johnson with a lifelong belief in creative uses of chaos, put it another way: “The minute you establish an organization, it starts to decay.“
• “Sage wasn’t at all sure an LBO was the solution to RJR Nabisco’s problems, and as a general matter, he didn’t enjoy seeing America’s great companies replace good, old-fashioned shareholder equity with bank debt. One of American industry’s great strengths, Sage and men of his generation felt, was its capital base. At at time when the country faced stiff competition in world markets, he hated to watch that advantage being squandered. Business, he felt, should be creating jobs and new products, things it couldn’t do if it was focused on paying back debt. More to the point, he wasn’t at all certain Johnson’s free-spending style could be reconciled with the rigorous demands and cost cuts demanded by high levels of debt. Still, he kept his doubts to himself.”
• “During the 1950’s Lou Roberts often took his teenage son George along to business meetings. At an American Petroleum Institute conference one year, father and son sat by a dirt-caked wildcatter in cowboy boots while listening to a speech by the chairman of Humble Oil, the predecessor to Exxon. “Which one of those two men would you like to be? Lou Roberts asked his son afterward. “I’d rather be like the guy up on the stage, the businessman,” young George answered. The businessman, his father explained, had 50,000 employees to watch over, a long, tiring workday, and could expect a pension of several hundred thousand dollars on retirement. The wildcatter, on the other hand, had maybe 30 employees, several dozen oil wells that pumped away while he slept, and was probably worth $5 million. “Now who would you rather be?” Lou Roberts asked.
• “I always had the impression Henry just wanted to show he was doing better than his father.”
• “The two estimated how much money they could make at Bear Stearns over the next decade, compared to going their own way. Bear won. Kravis left anyway.”
• “The Internal Revenue Code, by making interest but not dividends deductible from taxable income, in effect subsidized the trend. That got LBOs off the ground. What made them soar was junk bonds.”
• “The only ones hurt were the company’s bondholders, whose holdings were devastated in the face of new debt, and employees, who often lost their jobs. In the sheer joy of making money, Wall Street didn’t pay too much attention to either group.”
• “To Forstmann the junk bond was a drug that enabled the puniest acquisitors to take on the titans of the industry, and he held it responsible for twisting the buyout world’s priorities until they were unrecognizable. No longer, Forstmann believed, did buyout firms buy companies to work side-by-side with management, grow their businesses and sell out in five to seven years, as Forstmann Little did. All that mattered now was keeping up a steady flow of transactions that produced an even steadier flow of fees — management fees for the buyout firms, advisory fees for the investment banks, junk-bond fees for the bond specialists. As far as Ted Forstmann was concerned, the entire LBO industry had become the province of quick-buck artists.”
• “Today’s financial age has become a period of unbridles excellent with accepted risk soaring out of proportion to possible reward. Every week, with ever-increasing levels of irresponsibility with debt that has virtually no chance of being repaid. Most of this is happening for the short-term benefit of Wall Street’s investment bankers, lawyers, leveraged-buyout firms and junk-bond dealers at the long-term expense of Main Street’s employees, communities, companies, and investors.”
• “Ross,” John Gutfreund asked, “do you think that the board is really against you?”
• “Well, the relationship only goes so far,” Johnson said. The threat of lawsuits tended to spoil even the best friendships. “They’re not against me,” he explained, “they’re for themselves. It’s a pretty big damn difference.”