Monday, June 9, 2014

Henry Kravis as Godzilla and Katsumoto

His name is synonymous with 'Corporate Titan.' As co-founder of KKR, Henry Kravis re-wrote the rules of leveraged buyouts; he and his cousin George Roberts now rule over an empire that dwarfs some of the world's mightiest public corporations. "Bloomberg Game Changers" follows Kravis' rise from his early days in 'bootstrap' acquisitions, through his role in the 1988 landmark LBO of RJR-Nabisco, to KKR's IPO on the New York Stock Exchange.
It was about using Wall Street in a new way, mobilizing capital to go into companies, and building them into even stronger companies.  Henry Kravis' idea was to work with the existing management and to sell off companies assets to boost profits quickly.  But it was clear he had no patience for anyone who didn't cooperate, and he went to war against anyone who dared defeat him.  
He was not just big guns coming in, it was Godzilla wading in from the ocean and stomping down Wall Street.
The story?  RJR-Nabisco was Kravis' LBO target in 1987, especially because CEO Ross Johnson was willing to listen to anything that would bring his company and himself a fortune.  The plan, broadly speaking, was to sell its bloated food division and keep the cash cow cigarette division (Winston and Camel).  Kravis saw this as the blockbuster deal that he craved in a decade of increasing desire for more: greed is good.  

Except that Johnson wanted to engineer the LBO himself.  In partnership with Shearson Lehman Hutton, which had no experience in such deal making.  Hmm, what was he thinking?  Kravis was outraged.  He must've had no idea how much of a blockbuster RJR-Nabisco was to become, as he and Johnson squared off - Godzilla vs King Kong.  The two spiked the value of RJR-Nabisco up, which on graph looked like the dizzying vertical surface of El Capitan.
Henry Kravis has constantly pushed the envelope. He's helped define the private equity industry.
The Board of RJR-Nabisco demured, when Kravis raised its initial offer and even as its own insider upped the ante.  But eventually the Wall Street Tycoon (aka Godzilla) won the day.  Or did he?  The war with Johnson must've been a Pyrrhic Victory, as the cash cow didn't turn out to be as much of a cash cow going into the 1990s.  By the middle of that decade, there was such social backlash on smoking that Kravis had to rid the firm of the once-coveted prize of the RJR-Nabisco LBO.
Henry was ahead of everybody, when it came to raising money. He sort of invented the business.
This biography could've easily taken hours. Kravis may have been as calculating and fierce, as steely and brilliant as Katsumoto in `The Last Samurai.  But both character and tycoon were only human after all.  I'd want to know how Kravis rethought his dealmaking approach as the last decade rolled in.  The handsome Jewish man is 70 now, but we'd be forgiven for thinking he was much older.  Katsumoto died proudly in the field of battle, so will Kravis, I'm sure, when his time comes.  

Henry Kravis
Thank you for reading, and let me know what you think!

Ron Villejo, PhD

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