Barbarians at the Gate: The Fall of RJR Nabisco

The stock market crash of October 19, 1987, which brought the RJR Nabisco share price from the mid-sixties to the low forties, marked “the beginning of Johnson’s road to ruin” (103). Johnson’s attempts to mend the situation failed, even when food prices rose. To him, stock performance was “something of a report card” (103). Johnson considered merging with a food company such as Pillsbury. Shareholders like Clemmie Dixon Sprangler, Jr., the president of the University of North Carolina, blamed Ross for the company’s poor performance. Sprangler and Sticht were both interested in an LBO through Citibank. Sprangler informed Johnson of his LBO idea at $70 a share. Johnson—who did not show his true feelings—was in shock and considered Spangler’s proposal “crazy” (106). Citibank’s proposal was $65 a share, with 10% going to Johnson. Johnson rejected the latter proposal and had CFO Harold Henderson “read Sticht the riot act” (107). Instead, Johnson launched a buyout, purchasing 20 million shares at $52 to $58, then another 21 million shares at $53.50. $1.1 billion was spent on company stock, but the share price was back in the mid-forties.

At that time, mergers and acquisitions were “the ultimate creature of Wall Street because win, lose, or draw, they produced fees” (108).