Penguin Readers Factsheets
T e a c h e r’s n o t e s
Barbarians at the Gate
by Bryan Burrough and John Helyar
S U M M A R Y
arbarians at the Gate is the story of the largest
B corporate takeover in Wall Street history. It is also
the story of the remarkable rise of Ross Johnson to
the heady heights of corporate business.
Johnson came late to management at the age of forty in
the early 1970s, but, in the next 15 years, he rose
inexorably to be head of the nineteenth largest
corporation in the United States - RJR Nabisco - and
leader of a management team which became involved in
a leveraged buyout (LBO) worth billions.
His methods were ruthless but effective. He worked for
himself, for the extravagant perks which he valued, and
for the ultimate power which he insisted on. He believed
that a CEO can do anything. In the process, however, he
also increased the value of his companies for the
shareholders.
At first, in the bidding war to buy out RJR Nabisco,
Johnson appeared to hold all the cards. He certainly
believed so. He was convinced that the board would
approve his offer because they needed him. He seems to
have believed they liked him, too, and were his friends.
But he had made many enemies on his climb up the
corporate ladder, and several of these conspired in the
end to deprive him of the ultimate prize in management,
and hundreds of thousands of dollars in personal
earnings.
ABOUT BRYAN BURROUGH
AND JOHN HELYAR
Bryan Burrough and John Helyar were both journalists for
the Wall Street Journal. They wrote a series of articles
about the takeover attempt. In 1989, they obtained
additional information for the book by doing over 100
interviews. They interviewed all the major people -
executives, lawyers, bankers and Wall Street traders -
involved in the story, as well as many others.
Bryan Burrough has worked for the Wall Street Journal
since the early 1980s. He has also written Vendetta:
American Express and The Smearing of Edmond Safra
(1992).
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ASVANCED
John Helyar has worked for various newspapers
including the Wall Street Journal, which he left in 1989. He
is currently senior editor of Southpoint magazine’s
business section.
BACKGROUND AND THEMES
The early 1980s was an exciting time in American
corporate history with many mergers and acquisitions. It
was also a good time for the American economy in
general although not for the average individual. Ronald
Reagan took office at the beginning of the decade and cut
income tax. When interest rates and inflation eventually
started to come down, the US economy experienced a
strong recovery. Share prices rose steadily, inflation
remained low and unemployment fell. But despite all this
good economic news, individual incomes were still lower
than in the early 1970s. Family incomes only rose because
many more married women joined the labour force.
Against this background of economic stagnation for the
individual, thousands of small investors were persuaded
to invest in the rising stock market but, on Black Monday,
October 19, 1987, the New York stock market - known as
Wall Street because of its location - fell dramatically. By
the end of the day the Dow Jones Industrial Average had
lost more than 22.5% in value. The crash was blamed on
a number of factors including underlying weaknesses in
the U.S. economy, and computerized trading on Wall
Street, which enabled sell orders to be triggered
automatically rather than being mediated through a
human being. The crash ruined many individuals and
came in the middle of Ross Johnson’s problems with the
share value of his company. RJR Nabisco. In fact, the
crash may have led to Johnson’s decision to go for an
LBO, a reversal of his previous position on the matter. It
may also have contributed to a public disgust with the
corporate greed which characterized the decade, which in
turn led to the board of Nabisco finally voting against
Johnson, who had came to epitomize this greed. after a
number of unflattering articles in the press.

Penguin Readers Factsheets
T e a c h e r’s n o t e s
Communicative activities
The following teacher-led activities cover the same sections
of text as the exercises at the back of the Reader and
supplement those exercises. For supplementary exercises
covering shorter sections of the book, see the
photocopiable Student’s Activities pages of this Factsheet.
These are primarily for use with class readers but, with the
exception of the discussion and pair/groupwork activities,
can also be used by students working alone in a self–access
centre.
ACTIVITIES BEFORE READING THE BOOK
Write the following information on the board in summary
form:
There are three main structures for a company:
(a) it can be owned by one person who makes all the
decisions or delegates decision making but keeps
overall control.
(b) it can be a partnership where two or more people share
control
(c) it can be owned by shareholders and managed by a
CEO (Chief Executive Officer) and board.
Ask students to consider the advantages and
disadvantages of each kind of company structure and to
say which structure is suitable for different kinds of
business operation.
ACTIVITIES AFTER READING A SECTION
Chapters 1–3
Ask students to work in groups and agree on three
adjectives to describe Ross Johnson.
Chapters 4–6
Ask students to work in groups to role play the meeting of
the Shearson group and the Johnson group in Johnson’s
office - pages 21-23.
Chapters 7–9
Set up two role plays from the information on pages 51-53:
(a) Forstmann and Boisi are talking to Jim Robinson in
Johnson’s office.
(b) Kravis is talking to Cohen in a nearby conference room.
Ross Johnson is moving between the two rooms.
Chapters 10-–12
Ask students to decide, at this stage of the process, who
should win the bidding and explain why they feel this way.
Chapters 13–15
Ask students to work in groups and consider how Ross
Johnson’s attitude changes during the final stages of the
auction. Can they explain possible reasons for these
changes?
ACTIVITIES AFTER READING THE BOOK
1 Ask students to work in groups and consider how the
board’s attitude to Ross Johnson changed during the
course of the LBO battle and give possible reasons for
the changes.
© Pearson Education 2001
level
6
2 Ask students to make a list of points that they have
learnt about the modern business world from reading
this book.
Glossary
It will be useful for your students to know the following new words. They
are practised in the ‘Before You Read’sections of exercises at the back
of the book. (Definitions are based on those in the Longman Active
Study Dictionary.)
Chapters 1–3
ambivalent (adj) not sure whether you like or want something or not
committee (n) a group of people who meet regularly and have been
chosen to do a particular job
concerns (n) worries
extravagant (adj) spending or costing too much money
launch (v) to make a new product available to be sold
leveraged buyout (n) a takeover which is financed by selling off assets
or from future profits of the company
perks (n) something that you get from your work in addition to pay
press release (n) piece of news which is given to journalists
quit (v) leave, sometimes in anger
top (v) go higher than, especially an offer
transactions (n) an occasion when a company buys or sells a product
or service
Chapters 4–6
compromise (n) an agreement where one or both sides accept less
than they want
exclusive (adj) not shared with others
hostile (adj) not friendly
junk bonds (n) bonds which are not backed by security
leak (v) to give away a secret, usually deliberately
merchant bank (n) a bank which specialises in investing rather than
providing consumer services
participate (v) to take part in
tender offer (n) an offer to provide products or services at a particular
price
veto (v) to refuse to allow something to happen
Chapters 7–9
acquisition (n) something that someone has obtained, especially by
buying it.
barbarian (n) someone who behaves badly or cruelly and does not
respect normal ideas of what is good, valuable, beautiful etc.
confidential (adj) intended to be kept secret
Chapters 10–12
auction (n) an event at which things are sold to the person who offers
the most money
deadline (n) a date or time by which something must be finished
proceeds (n) the money you get from selling something, or from an
event
projection (n) a prediction of future income, expenditure etc.
restructured (adj) changed to meet new circumstances, especially a
business
round (n) a set of events that are connected
Chapters 13–15
greed (n) when you want to have more money, food etc. than you need
Pub lis hed an d dis tribut ed by Pe arson Educ atio n
Fa ctsh eet wri tt en by Te rr y Ph il lips
Factsheet series developed by Louise James
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Student’s activities 1

2
Barbarians at the Gate 3

Photocopiable 4
Students can do these exercises alone or with one or more
other students. Pair/group-only activities are marked. 5

Activities before reading the book 6

1 Discuss in pairs the possible meanings of the title? (c) Recognize that success comes from taking
Who are the barbarians in this case? What is the gate? advantage of ... which cannot be planned. ADVANCED
2 Read the first part of the Introduction. Who do you (d) It’s hard to be enthusiastic about ... the company
think now are the barbarians? What is the gate? now.
(e) The company should be sold to the highest ... .
3 Read the second half of the introduction.
(f) We have a duty to our ... .
Discuss in pairs the writing style that you expect to find
in this book. Explain your ideas. (g) I hear a lot of CEOs complaining about their
undervalued ... .
(h) The price has to be $75 a ... in cash.
Activities while reading the book
(i) It will look bad if we use ... .
Chapters 1–3 (j) Now we have to find $17 ... .
1 Number these events in order Chapters 4-6
(a) Henry Kravis suggested an LBO of RJR Nabisco
with Johnson leading the management team but 1 What did Johnson want from the deal with Shearson’s?
Johnson rejected the idea. (3 points)

(b) Johnson asked one of his advisers to explain 2 What did Shearson’s eventually agree to? (3 points)
LBOs. 3 Who works for whom? Match the companies and the
(c) Johnson became CEO of Nabisco Brands. people.
(d) Johnson became CEO of RJR Nabisco. Companies People
(e) Johnson became CEO of Standard Brands.
Shearson Beck
(f) Johnson became chief operating officer of
Standard Brands. Drexel Burnham Gutfreund
(g) Johnson called a meeting in Atlanta of all the
directors of RJR Nabisco. Kohlberg Kravis Hill
(h) Johnson decided to attempt an LBO. Salomon Brothers Kravis
(i) Johnson entered management as President of the
Standard Brands, Montreal. 4 Three groups of companies are interested in an LBO of
RJR Nabisco. Put these companies into the correct
(j) Johnson merged Standard Brands with Nabisco. groups.
(k) Johnson told the directors of RJR Nabisco of his
Banker’s Trust Dillon Read Drexel Burnham
plans for a leveraged buyout.
Hanson Trust Kohlberg Kravis Lazard Freres
(l) Johnson was promoted to run the international
Manufactures Hanover Merrill Lynch
department of Standard Brands in New York.
Morgan Stanley Salomon Brothers
(m) Paul Sticht suggested an LBO of RJR Nabisco Shearson Wasserstein Perella
with Johnson leading the management team but
Johnson rejected the idea.
(n) RJ Reynolds Industries acquired Nabisco Brands. Chapters 7–9
(o) The board of RJR Nabisco told Johnson to go Why...?
ahead with the LBO.
(a) did Forstmann want to hurt Henry Kravis?
(p) The stock market crashed.
(b) did Drexel want the Shearson bid to fail?
2 Complete each quotation from Ross Johnson with one
word: (c) did Johnsan say ‘This is over’ when he heard about
Kravis’ bid?
(a) The chief ... can do whatever he wants.
(d) weren’t Johnson’s interests the same as Shearson’s?
(b) One of the most important jobs a CEO has is
taking care of the ... . (e) was Jim Robinson unhappy with Johnson’s
management agreement?

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Penguin Readers Factsheets 6
Student’s activities

(f) did Johnson mention Ted Forstmann during his (n) Greeniaus’ job was to produce 12% earnings every ....
meeting with Kravis? but they received much more than that.
(g) did Johnson mention Kravis during his meeting with (o) Some of the cash went on Johnson’s extravagant ... .
Ted Forstmann? (p) Forstmann realised he could not raise enough money
(h) was it difficult for the managers to decide between and ... from the bidding.
Kravis and Shearson? (q) A new bidder, First Boston, found an unusual ... law
(i) did Kravis need Johnson? that would enable them to give shareholders extra
cash.
(j) couldn’t the Johnson team reach agreement with
Kravis? (r) But the board thought First Boston’s approach was
too ...
(k) didn’t Strauss of Salomon’s talk to Kravis before siding
with Johnson’s team? (s) Johnson agreed to cut his group’s ... to 6.5% but he
still planned to take 1% himself.
(l) did Forstmann reject the document Cohen showed
him? (t) Kravis bid $94 a ..., Johnson $100 and First Boston
suggested they could get between $105 and $118.
(m) did Forstmann accept the new capital structure Cohen
gave him over the phone? (u) Johnson was ready to quit and Cohen began to realize
that maybe he wasn’t an ... to the company.
(n) did Forstmann eventually pull out of the deal with
Cohen altogether? (v) The special committee decided on a second round of
the ...
(o) was Kravis discouraged after the interviews with
managers?
Chapters 13-15
(p) did Kravis agree to meet Johnson?
1 First Boston’s bid from the first round was $118 a
(q) was Johnson thrilled after his meeting with Kravis? share. What did the other two teams - the
(r) was Kravis shocked by the management agreement? management team of Ross Johnson and Kravis’ team
bid during the rest of the auction? Make a list of the
(s) wasn’t Johnson concerned about the disagreements? bids in order.
(t) was Johnson shocked by the management group’s
bid? 2 Why was First Boston’s high bid not accepted?
3 What did the management team lose out to Kravis in
Chapters 10–12 the end?
Complete this summary of these chapters with a suitable
word in each space.
Activities after reading the book
(a) The story of the management agreement appeared in
the business ... of the New York Times. 1 Explain the title of the book. Who are the barbarians?
(b) Johnson sent Hugel a letter, saying that much of the ... Do they win?
would be given to large numbers of employees. 2 Who gains the most from the final deal? Explain your
(c) Forstmann’s group was ready to ... answer.
(d) Fostman didn’t like using ... bonds in LBOs.
(e) The RJR Nabisco directors didn’t like the negative ...
the company was getting.
(f) The management agreement had upset many of the ...
of the company.
(g) Johnson was worried that, if he won, his ... would be
greatly reduced.
(h) Johnson doubled Sage’s salary but the board had
never approved the ...
(i) Greeniaus wanted Nabisco to be a ... company.
(j) Greeniaus showed the chief financial officer a plan to
... the company.
(k) Kravis needed accurate ... of profits, sales and cash
flow.
(l) All the bidders knew that the higher the price, the
higher the ....
(m) Information that Kravis collected from Nabisco
included a heading “Other Uses of ...”

Publi sh ed and distrib ute d by P earso n E ducat ion

Fac tshee t wri tt en by Ter ry P hil l ips
© Pearson Education 2001
F actsh eet s eri es devel o ped by L ouise J am es