Chronicling the predators of American finance
The untold stories behind the leveraged buyouts, hostile raids, and corporate coups that reshaped capitalism forever.
A $25 billion wager that would end careers, forge fortunes, and change Wall Street forever. The inside story of the greatest leveraged buyout in history.
Read storyHe had no love for airlines. But when Carl Icahn set his sights on Trans World Airlines, he made their problem his opportunity.
Read storyMichael Milken built the junk-bond market from scratch, became the highest-paid man in Wall Street history — and watched it all collapse in a federal indictment.
Read storyThe nuclear weapon of 1980s finance, explained in plain English. Before you understand the deals, you need to understand the weapon.
Read primerThe raid that proved no oil major was safe. The boardroom never forgave him.
Coming SoonEvery spring the most feared men in American finance flew to Beverly Hills to trade favors and financing with Michael Milken.
Coming SoonHe turned merger arbitrage into an art form — then ruined it for everyone by cheating.
Coming SoonThe $6.2 billion deal that proved the LBO machine could scale — and set the stage for RJR.
Coming SoonThe corporate defense that made hostile takeovers ten times harder — and created a cottage industry for lawyers.
Coming SoonA beauty company, a leveraged raider, and a Delaware court ruling that changed M&A law forever.
Coming SoonIn a windowless conference room on the 36th floor of Shearson Lehman, a group of men in rolled-up shirtsleeves were about to trigger the most audacious leveraged buyout in history.
It began, as many catastrophes do, with a phone call. On October 19, 1988, Ross Johnson — the silver-haired, backslapping CEO of RJR Nabisco — called Peter Cohen at Shearson Lehman Hutton with a proposition: take the company private. The price tag he had in mind was $17 a share. The board would hear about it two days later.
What Johnson did not anticipate was that the moment word leaked — and on Wall Street in 1988, word always leaked — every ambitious dealmaker in Manhattan would smell blood. Within a week, Henry Kravis and George Roberts at Kohlberg Kravis Roberts had entered their own bid. The war was on.
KKR's first offer came in at $20.6 billion. Johnson's group countered. KKR raised. The numbers climbed to places that made even hardened Wall Street veterans uncomfortable. Investment bankers from a dozen firms descended on Midtown hotels, running valuation models through the night, sustained by room service and the intoxicating possibility of fees measured in nine figures.
By November 30, 1988, KKR had won — at $109 per share, a total acquisition price of $31.4 billion. It was the largest leveraged buyout in history. It would hold that record for seventeen years.
Ross Johnson walked away with a golden parachute rumored at $53 million. KKR loaded RJR with debt, sold off divisions, and spent the next decade trying to service a burden that nearly broke the company. Bryan Burrough and John Helyar immortalized the story in Barbarians at the Gate. It remains the definitive account of a deal that captured the spirit of an era: the arrogance, the appetite, the absolute conviction that price was no object when the prize was large enough.
He had no love for airlines. He barely flew. But when Carl Icahn set his sights on Trans World Airlines, he made their problem his opportunity.
Carl Icahn grew up in Far Rockaway, Queens, the son of a cantor and a schoolteacher. He studied philosophy at Princeton, dropped out of medical school, and found his calling on the options desk of Dreyfus Corporation in 1961. By the 1980s he had become something Wall Street had no good word for: a man who bought large stakes in undervalued companies, agitated loudly for change, and either forced a buyout or pocketed a ransom to go away. They called it greenmail. Icahn called it business.
TWA was different. When Icahn began accumulating shares in early 1985, the airline was a mess — overstaffed, underperforming, fighting off another raider named Frank Lorenzo who wanted to strip it for parts. The unions, desperate for any alternative to Lorenzo, made Icahn an astonishing offer: concessions worth $300 million if he took control.
By January 1986, Icahn owned TWA. What followed was a masterclass in value extraction. He sold the transatlantic routes to American Airlines for $445 million. He sold the London Heathrow slots. He took the company private in 1988, pocketing roughly $469 million — while leaving the airline saddled with the debt he used to do it. TWA filed for bankruptcy in 1992. Icahn's net worth continued to climb.
Michael Milken built the junk-bond market from scratch, financed the entire raider era, and became the highest-paid man in the history of American finance. Then the government came calling.
In 1987, Michael Milken earned $550 million in a single year. Not the firm. Not the department. Milken. Personally. The number was so large that Drexel Burnham Lambert's accountants initially assumed it was a typo. It was not.
Milken had arrived at Drexel in 1969 with a thesis: the bond market was mispricing risk. Low-rated "junk" bonds yielded more than investment-grade paper — but not enough more to compensate investors properly. If you assembled a diversified portfolio, the yield premium more than covered the default risk. He was right. He spent twenty years proving it.
By the mid-1980s, Milken's Beverly Hills operation was the engine of the entire raider economy. Carl Icahn, Ron Perelman, T. Boone Pickens, Nelson Peltz — they all came to Milken for financing. He could raise a billion dollars in a phone call. In 1989 he was indicted on 98 counts of racketeering and securities fraud. He pleaded guilty to six counts, paid $600 million in fines, and served 22 months in federal prison. Drexel Burnham Lambert filed for bankruptcy in February 1990. The junk-bond market he created is worth trillions today.
The nuclear weapon of 1980s finance, explained in plain English. Before you understand the deals, you need to understand the weapon.
A leveraged buyout — an LBO — is the acquisition of a company using a significant amount of borrowed money. The trick is that the assets of the company being acquired serve as collateral for the loans used to buy it. Once acquired, the company itself must generate enough cash to repay that debt. The buyer puts in relatively little of their own money. The target pays the bill.
The appeal is geometric. If you buy a company for $1 billion using $100 million of your own equity and $900 million of debt, and the company later sells for $1.5 billion, your $100 million has become $600 million — a 6x return. The debt amplifies every dollar of gain. It also amplifies every dollar of loss.
Three things converged to make the 1980s the golden age of the LBO. First, interest rates fell from their early-decade highs, making debt cheaper. Second, Michael Milken at Drexel Burnham Lambert created a liquid market for high-yield bonds, giving raiders access to capital that previously didn't exist. Third, many large American corporations were poorly managed and undervalued — sitting targets.
The leveraged buyout did not die with the 1980s. It evolved into the private equity industry, which today manages trillions of dollars globally. KKR, Blackstone, Carlyle — all descendants of the same basic idea. The math is unchanged. The scale is orders of magnitude larger.