Barbarians at the Gate

Yes, everybody has heard of it. Most of them have not read it, and the ones who did read it as a story about greed in the eighties.

Read it as a mechanics book. The RJR Nabisco buyout is the most thoroughly documented deal in history and this is close to an hour-by-hour account of it.

You see the financing get assembled. You see how the bidding actually moves, which is nothing like an auction in a textbook. You see information leak and what that does to price. You see a board behave when it is frightened, and a management team talk itself into a number with no relationship to the business.

Ross Johnson is the character everybody remembers. The one to watch is Kravis.

Kravis understands that the auction is not about who values the company highest. It is about who can put certainty on the table, and he is the only person in the book who seems to know that the whole time.

Every deal I have been in since, the seller is buying certainty as much as price. A slightly lower number that will definitely close beats a higher number with conditions hanging off it.