Henry Kravis’s $45 Million Hour
The golden story from private equity's golden years...
Good morning, everyone.
This week’s newsletter includes: one of the most lore stories in private equity history, and a legendary finance movie from 1980’s you probably haven’t seen, hint: it isn’t Wall Street.
How To Maximise Your Leverage
Henry Kravis, Co-Founder of KKR, once billed $45 million for a single hour. Here’s the jaw-dropping true story from the golden age of Private Equity…
The final stages of a bidding war for tobacco and food company RJR Nabisco in 1988 involved a dramatic clash between KKR, co-founded by Henry Kravis, and the company’s management team, led by CEO F. Ross Johnson.
Both parties were fiercely competing for control of the company.
Offers escalated, as the tension mounted.
On the top floor of RJR Nabisco’s office, Henry Kravis and his cousin George Roberts represented KKR in one room, current CEO F. Ross Johnson and his management team sat in another room.
And the Board of RJR Nabisco convened in the conference room.
The Board received numerous bids from both KKR and the existing RJR Nabisco board, battling it out to take control of the company.
Finally, the Chairman of the Board told Henry he would recommend their offer...
Hours passed, but Henry heard nothing...
Still waiting around at RJR Nabisco’s office for an update, he grew impatient. It became clear to Henry that the Board was playing their offer against the Managements offer, creating an all-out bidding war. Finally, the Chairman of the Board strolled in with an update…
Chairman: “We’ve got to do what’s best for the shareholders, which includes asking you not to leave. Give us 1 hour to think it through.”
Henry: “We are not interested in an opened end bidding process”
Chairman: “Just stay 1 hour”
Henry: “If you pay KKR’s expenses to date on this deal, we’ll wait 1 hour”.
Chairman: “How much are we talking?”
Henry: “$45 million.”
Chairman: “$45 million for 1 hour? I think I can sell that to the Board”.
Henry knew the value of extra time to evaluate the competing bids in such a high-stakes situation.
Faced with no other option, the Board agreed.
KKR went on to win the bid, with Henry ensuring the $45 million for 1 hour of his time was paid.
The moment became legend - later dramatized in print and on screen in Barbarians at the Gate.
Reflecting on the deal, Henry said:
“It’s about recognizing the value in every opportunity, big or small. In this business - time is one of the most valuable assets you have.”
Recommendation’s
Watch the entire Barbarians At The Gate movie on YouTube for free! Quality is not great, but who cares. Forget the latest boring Marvel sequel - someone needs to remake this movie.
A very rare interview with Henry from 1987 that is absolutely worth watching here.
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Joseph Cass