Barbarians at the Gate: The Fall of RJR Nabisco

The corporate history of RJR Nabisco is central to this book, as it ties together several parts of the narrative: the biographies of key players like F. Ross Johnson, who drove its development and transformation; the growth of the North Carolina factory town of Winston-Salem; changing societal attitudes toward smoking; and the development of the leveraged buyout (LBO) method in the context of 1980s Wall Street excess and greed.

RJR Nabisco was a conglomerate that combined three companies: Standard Brands, Nabisco, and RJ Reynolds. The first two were packaged food companies, and the latter a tobacco company. In turn, Standard Brands itself arose out of the 1929 JP Morgan-led corporate merger of several entities, including E. W. Gillett Company of Canada and Fleischmann Company. In just over a decade, Standard Brands became one of the key companies in the North American market for packaged goods. By 1955, Standard Brands began appearing on the Fortune 500 list. As the company grew, it acquired brands such as Planters. In 1981, the company merged with Nabisco and became Nabisco Brands.

Adolphus Green established the National Biscuit Company (Nabisco) in 1898. In its early days, advertisements made by the well-known agency N. W. Ayer helped Nabisco popularize its products nationally. The company eventually produced such famous brands as Shredded Wheat, Ritz, and Oreo. For a time, starting in the 1960s, Nabisco expanded internationally to Europe, the Americas, and Australia. F. Ross Johnson, the president of Standard Brands, was key to negotiating this merger deal and took over Nabisco Brands as its chief executive after the departure of its former chief, Bob Schaeberle.

The authors describe the shrewd behind-the-scenes maneuvering Johnson used to push the RJ Reynolds chief Tylee Wilson out of the company and the grudge Wilson subsequently bore against Johnson. Reynolds, a tobacco company, had a tightknit relationship with Winston-Salem, a factory town the company helped develop: “If not for RJ Reynolds Tobacco Company, the modest skyline of downtown Winston-Salem, North Carolina, would not exist at all” (40). In this sense, RJ Reynolds reflected American history. Founded in 1875 by a Virginian, Richard Joshua Reynolds, the tobacco company became one of the largest in the country and defined the economy and culture of Winston-Salem: “[I]ts influence ripples out in all directions” (40). Many of its employees were Czech immigrants, of whom the authors say, “[The] tenacious Moravian work ethic laid the foundation of the Reynolds corporate culture for decades to come” (43).

Some of RJ Reynold’s brands, such as Prince Albert and, later, Camel, became national and international icons. Starting in the 1960s, Reynolds bought companies in other fields, such as the logistical Sea-Land Service and Del Monte Foods. However, the 1964 warning by Surgeon General Luther Terry—who “issued his landmark report linking cigarette smoke with cancer”—began an era of relative decline (50). As a result, some companies, like competitor Philip Morris, started to pursue markets abroad. J. Paul Sticht was the company’s chief executive who expanded the business prior to Tylee Wilson’s takeover in 1983. Indeed, the ego clash between Wilson and Sticht is one of many in this book.

When Ross Johnson became the CEO of the merged RJR Nabisco in 1986, he transformed the newly merged company in a number of key ways. First, he moved the company headquarters to Atlanta, a decision that made him a pariah in the North Carolina town. Second, he thrived on corporate excess, paying celebrities for appearances at corporate events and using the firm’s fleet of private jets for non-business travel. Finally, Johnson began working on a smokeless cigarette, Premier, to counter rising concerns about the health effects of smoking. In 1988, Johnson lost his management group’s bid for a leveraged buyout (LBO) in a bidding war, backed by Shearson Lehman Hutton and Salomon, to Henry Kravis’s Kohlberg Kravis Roberts (KKR).

Kravis moved the corporate headquarters to New York City in 1989 and divested certain RJR Nabisco businesses, including Fresh Del Monte Produce, to pay off some of the massive LBO debt. Two years later, KKR made RJR Nabisco Holdings Corp. public through an initial public offering (IPO). By 1995, KKR had lost control of the company through gradual divestiture. In 1999, the company became defunct, having been split into RJ Reynolds Tobacco and Nabisco Group Holdings—the latter bought by Philip Morris.