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Buying a company to sell it for parts: the 1980s corporate raiders and greenmail, Milken's junk bonds and the leveraged-buyout boom that peaked with RJR Nabisco, private equity as its modern successor...
Buying a company to sell it for parts: the 1980s corporate raiders and greenmail, Milken's junk bonds and the leveraged-buyout boom that peaked with RJR Nabisco, private equity as its modern successor, and the privatization that gutted Soviet and other state industries.
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Jim Slater and Peter Walker founded Slater Walker Securities, a merchant bank that grew through buying undervalued companies and selling their assets piece by piece. Slater became the best-known practitioner of what the British press dubbed "asset stripping." The firm's methods were widely copied and widely attacked as destructive to the companies involved, a charge Slater rejected, arguing he was correcting a market that undervalued assets.
James Hanson and Gordon White built Hanson Trust into a sprawling conglomerate that grew mainly by acquiring companies, cutting costs sharply, and selling off divisions that did not fit its model. Hanson became one of the largest companies in Britain by the late 1980s using this approach. Critics called it asset stripping dressed up as management; Hanson's defenders said it forced complacent, badly run businesses to become efficient.
Carl Icahn started his own brokerage and investment firm, which he later used as the base for buying stakes in undervalued companies and pressuring management to sell assets, pay dividends, or accept a takeover. He became one of the most prominent American corporate raiders of the following two decades. Icahn described his approach as disciplining wasteful management on behalf of shareholders; targeted executives and unions often described it as short-term asset stripping.
Saul Steinberg, whose Leasco Data Processing had grown by acquiring the insurer Reliance Group, attempted a hostile bid for Chemical Bank, one of the largest banks in the United States. The bid failed after intense opposition from the banking establishment and regulators, but it marked Steinberg as an aggressive young raider willing to target companies far larger than his own. The episode helped set the template for the hostile-takeover era that followed.
Jerome Kohlberg, Henry Kravis, and George Roberts left Bear Stearns to found Kohlberg Kravis Roberts (KKR), a firm dedicated to buying companies using large amounts of borrowed money, a technique that became known as the leveraged buyout. KKR would go on to complete some of the largest and most famous LBOs of the 1980s. Supporters said the model sharpened management focus by loading firms with debt they had to service; critics said it left companies fragile and prone to selling off assets to pay down that debt.
William Simon's Wesray Capital bought the greeting-card maker Gibson Greetings for about $80 million, put in roughly $1 million of its own equity, and took the company public 16 months later at a valuation of around $290 million. The enormous return on a tiny equity stake became the widely cited proof-of-concept for the leveraged buyout industry that boomed for the rest of the decade. It showed financiers that large gains were possible by using debt rather than fresh capital to acquire operating companies.
British-French financier Sir James Goldsmith won a hostile takeover battle for Diamond International, a paper and packaging conglomerate, and then sold off its timberland, match business, and other divisions for a combined sum well above what he had paid for the whole company. The deal became one of the clearest examples of pure asset stripping in the era: buying a company for less than the sum of its parts and profiting entirely from breaking it up. Goldsmith called it recognizing hidden value; labor unions and much of the press called it wrecking a business for a quick profit.
T. Boone Pickens's Mesa Petroleum launched a hostile bid for the much larger Cities Service oil company, arguing its stock traded far below the value of its oil and gas reserves. Cities Service fought off Mesa and was ultimately bought by Occidental Petroleum. The raid established Pickens as a leading practitioner of the 1980s oil-patch takeover wave, in which raiders argued they were unlocking value that entrenched management was wasting.
Bill Bain, Mitt Romney, and colleagues from the consulting firm Bain & Company founded Bain Capital to apply consulting-style analysis to buying and restructuring companies with borrowed money. Bain Capital grew into one of the largest private equity firms in the world over the following decades. Its deals, like those of its peers, drew a recurring debate: the firm argued its operational improvements created lasting value, while critics of specific deals pointed to layoffs, plant closures, and bankruptcies following heavy debt loads.
Mesa Petroleum, led by T. Boone Pickens, built a large stake in Gulf Oil and pushed for a takeover, arguing the company's shares undervalued its oil reserves. Gulf's board responded by arranging a friendly merger with Chevron instead, then the sixth-largest corporate merger in US history at the time. Pickens did not gain control of Gulf but profited handsomely from the run-up in the stock, and the raid became a symbol of how takeover threats could force a target into a defensive sale regardless of the raider's original intent.
Saul Steinberg's Reliance Group bought a large stake in Walt Disney Productions and threatened a hostile takeover. Disney's board paid Steinberg roughly 60 million dollars more than the market price to buy back his shares and make him go away, a practice known as "greenmail." The episode was one of the most publicized greenmail deals of the decade and fueled the argument, made by shareholder advocates and later by Congress, that greenmail let raiders profit without ever having to run or fix the company.
The Thatcher government sold shares in British Telecom to the public, the largest share offering in British history at the time and the first of the major British state utility privatizations. The sale was designed partly to raise cash for the Treasury and partly to create a wider shareholder-owning public. Supporters credited it with improving efficiency and investment in telecoms; critics argued the shares were sold below fair value and that the state gave up a valuable long-term asset for a one-off cash gain.
Peter Peterson and Stephen Schwarzman founded Blackstone as a small mergers-and-acquisitions advisory firm; it soon expanded into leveraged buyouts and became, over the following decades, the largest private equity firm in the world by assets under management. Blackstone's rise paralleled the broader shift of the buyout business from opportunistic 1980s raiders into large, institutionalized private equity firms managing pension and endowment money. The firm's scale later made it a frequent reference point in debates over private equity's effect on the companies and workers it acquires.
Sir James Goldsmith won control of the paper company Crown Zellerbach in a hostile takeover and then broke it up, selling off timberland and mills. As with his earlier raid on Diamond International, the profit came mainly from dismantling the company rather than running it as a going concern. The deal reinforced Goldsmith's reputation, and drew renewed criticism from unions and some lawmakers, as a leading exponent of breakup-for-profit takeovers.
Carl Icahn won a hostile takeover fight for Trans World Airlines (TWA), taking the airline private in 1988 through a leveraged buyout financed largely with debt. Icahn later sold off TWA's most valuable international routes and its London Heathrow slots to other airlines, and the airline itself filed for bankruptcy in 1992 and again in 1995 under the debt load. Icahn's defenders said he kept an otherwise doomed airline alive longer than it would have survived; labor unions and many industry observers said he stripped its best assets and left an emptied-out carrier behind.
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Hanson Trust won a hostile takeover of Imperial Group, a large British tobacco, food, and brewing conglomerate, after a bidding contest. Hanson quickly sold off Imperial's brewing and restaurant businesses and other divisions that did not fit its strategy, keeping the profitable tobacco core. The deal was a textbook example of Hanson's approach: buy a diversified group, then sell the pieces for more than the whole had cost.
Sir James Goldsmith built a stake in Goodyear Tire & Rubber and launched a hostile bid, arguing the company was worth more broken up than as a single business. Goodyear's management fought back by buying out Goldsmith's stake at a premium and taking on substantial new debt to fend off the raid, drawing criticism in Congress over the use of greenmail and the debt burden left on the company. Goldsmith profited from the stock buyback despite never gaining control.
KKR bought the supermarket chain Safeway in a leveraged buyout to help management fend off a hostile bid from the Haft family's Dart Group. To pay down the debt taken on for the deal, Safeway sold off large numbers of stores and closed others, particularly in regions outside its core markets, and cut thousands of jobs. KKR and Safeway's management said the restructuring made the surviving business stronger; labor unions and some academic studies pointed to the job losses and store closures as direct costs of the debt-funded deal.
The British government sold British Gas to private shareholders in another large share offering under Margaret Thatcher's privatization program. As with British Telecom, the sale converted a state monopoly into a privately owned one without breaking it into competing pieces, which critics said simply replaced a public monopoly with a private one instead of opening the market to real competition. The government defended the sale as returning an inefficient nationalized industry to private, profit-driven management.
Canadian developer Robert Campeau won a hostile bidding war to buy Federated Department Stores, owner of Bloomingdale's and other chains, in a heavily leveraged deal financed largely with junk bonds arranged through Drexel Burnham. The debt load proved unsustainable, and Federated filed for bankruptcy in January 1990, one of the largest retail bankruptcies to that point. The collapse became a widely cited cautionary example of a debt-fueled takeover that overwhelmed the operating business it had acquired.
Revco D.S., a large drugstore chain, filed for bankruptcy less than two years after being taken private in a 1.25 billion dollar leveraged buyout led by its own management with financing from Salomon Brothers. The debt burden from the buyout left the company unable to invest in its stores and unable to service its obligations once sales slowed. The case became one of the most frequently cited examples in Congress and the financial press of an LBO that collapsed under its own debt.
KKR won a fierce bidding war against RJR Nabisco's own management team, led by F. Ross Johnson, to buy the food and tobacco conglomerate in a leveraged buyout worth about 25 billion dollars, the largest LBO of its era. The deal, financed overwhelmingly with debt underwritten in part by Drexel Burnham, became the subject of the book and later film "Barbarians at the Gate," which came to symbolize the excesses of the 1980s buyout boom. RJR Nabisco later sold off businesses and cut jobs to service the debt, and the deal is widely cited in both defenses and criticisms of the leveraged buyout model.
The British government sold British Steel Corporation to private investors, completing the privatization of the nationalized steel industry after years of plant closures and job cuts that had already shrunk the workforce sharply during the 1980s. Supporters pointed to the leaner, more competitive company that emerged; critics of the broader privatization program argued that decades of state assets and jobs had been stripped away in the name of efficiency, with the resulting profits flowing to new private owners rather than the communities that had built the industry.
Drexel Burnham Lambert, the investment bank that had built the modern junk-bond market under Michael Milken and financed much of the 1980s takeover and buyout boom, pleaded guilty to six felony counts of securities and mail fraud and agreed to pay a 650 million dollar fine. Prosecutors had built the case around insider trading and stock manipulation schemes involving Milken, Ivan Boesky, and others. The plea marked the beginning of the end for the firm that had underwritten financing for many of the decade's most aggressive raids and buyouts.
A federal grand jury indicted Michael Milken, the Drexel Burnham banker who had built the junk-bond financing that fueled much of the 1980s takeover and leveraged-buyout wave, on 98 counts of racketeering and securities fraud. The case centered on insider trading and stock parking schemes rather than the legality of junk bonds or leveraged buyouts themselves. Milken pleaded guilty to a reduced set of six counts in April 1990 and was sentenced to ten years in prison, later reduced.
Journalists Bryan Burrough and John Helyar published "Barbarians at the Gate," an account of the 1988 RJR Nabisco leveraged buyout battle that became a bestseller and later an HBO film. The book's title entered the language as shorthand for the aggressive, debt-financed takeover culture of Wall Street in the 1980s. It remains one of the most widely read popular accounts of how leveraged buyouts and hostile takeovers actually worked inside the boardroom.
Drexel Burnham Lambert filed for bankruptcy after the 1988 guilty plea, mounting legal costs, and the collapse of the junk-bond market it had built cut off its financing business. The firm's failure removed the main source of debt financing for hostile takeovers and leveraged buyouts and is widely seen as marking the end of the 1980s corporate-raider era. Its former bankers and traders went on to found or join many of the private equity and hedge fund firms that dominated the following decades.
The Mexican government under President Carlos Salinas sold Telmex, the state telephone monopoly, to a consortium led by businessman Carlos Slim along with France Telecom and Southwestern Bell. The sale was part of a wider wave of privatizations across Latin America in the late 1980s and 1990s intended to reduce state debt and encourage private investment. Slim's stake in Telmex became the foundation of his fortune, and critics later argued the sale preserved Telmex's monopoly position rather than opening the market to competition, a criticism the buyers and the government disputed.
President Carlos Menem's government sold off state enterprises including the national airline, telephone company, and oil company as part of an aggressive privatization and market liberalization program during the early 1990s. The government said the sales cut chronic deficits and modernized outdated state monopolies; critics, including later Argentine governments, argued that many assets were sold at low prices to politically connected buyers and that the proceeds were spent rather than invested, leaving the state poorer in the long run.
Hanson Trust built a stake in the chemicals group Imperial Chemical Industries (ICI) and prepared a hostile bid, prompting ICI to argue publicly that Hanson intended to break the company up and sell its parts rather than invest in its research and long-term business. Hanson withdrew the bid in 1991 after strong opposition from ICI's management, shareholders, and the British government. The episode became a rallying point in the British debate over whether hostile takeovers served shareholders or simply dismantled long-established industrial companies.
The Russian government, under reformer Anatoly Chubais, launched a mass privatization program that issued vouchers to citizens for shares in state enterprises, intended to convert the Soviet command economy into a private one quickly and irreversibly. In practice, most vouchers were bought up cheaply by insiders, managers, and emerging financial groups rather than held by ordinary citizens, concentrating ownership of former state industry in the hands of a small number of new owners. This first wave set the stage for the later loans-for-shares auctions and the rise of the oligarchs.
Czechoslovakia (later the Czech Republic) launched a mass voucher privatization program that distributed shares of state-owned enterprises to ordinary citizens through vouchers they could invest directly or through newly formed investment funds. Much of the ownership quickly consolidated into a small number of investment funds and bank-linked groups, and many enterprises were subsequently stripped of assets rather than restructured. Economists remain divided on the program: some credit it with a fast transition to private ownership, while others point to widespread asset stripping and weak corporate governance in its aftermath.
Vladimir Potanin's Uneximbank won a controlling stake in Norilsk Nickel, one of the world's largest nickel and palladium producers, through a loans-for-shares auction that Potanin himself had helped design as an advisor to the Russian government. The auction was widely criticized, including by Western observers and later by some Russian officials, as effectively rigged in favor of the bank running it, since Uneximbank both organized the bidding and won the asset. Norilsk Nickel became one of the emblematic cases of Soviet industrial assets passing into private oligarch hands for a fraction of their underlying value.
A group of Russian banks controlled by emerging oligarchs lent the cash-strapped Russian government money in exchange for the right to hold shares of major state enterprises as collateral, with the understanding that the government would default and the banks would keep the shares. The auctions, engineered largely by banker Vladimir Potanin and backed by President Boris Yeltsin's government ahead of the 1996 election, transferred some of the country's most valuable industrial and energy assets to a small circle of insiders at prices far below market value. The scheme is widely regarded, including by many Russian economists, as the decisive moment that created the post-Soviet oligarch class.
A bank controlled by Mikhail Khodorkovsky won control of Yukos, one of Russia's largest oil companies, through the loans-for-shares auction program, paying a sum far below the company's later market value. Khodorkovsky built Yukos into Russia's most valuable oil company over the following years before his 2003 arrest and the company's eventual dismantling by the Russian state. Yukos became one of the most cited examples worldwide of 1990s Russian privatization transferring state industrial wealth to a small number of politically connected businessmen at bargain prices.
A consortium linked to Boris Berezovsky and Roman Abramovich won control of the oil company Sibneft, formed in 1995 out of state oil production and refining assets, through the loans-for-shares privatization process. As with Yukos and Norilsk Nickel, the price paid was widely reported to be far below the company's underlying value, and the winning bidders had close ties to the officials running the auction. Abramovich later sold his stake in Sibneft to the state-controlled Gazprom in 2005 for several billion dollars, a sale often cited as showing how much value had been transferred cheaply in the original privatization.
KKR, Bain Capital, and the real estate firm Vornado bought the toy retailer Toys R Us in a 6.6 billion dollar leveraged buyout, loading the company with roughly 5 billion dollars of debt. The company's annual interest payments on that debt, reported at several hundred million dollars a year, left little room to invest in stores or compete with Amazon and Walmart over the following decade. The private equity owners said they had tried to modernize a struggling retailer against difficult industry headwinds; critics, including many of the company's own employees, argued the debt load itself was the primary cause of its later collapse.
Bain Capital and Thomas H. Lee Partners completed their leveraged buyout of Clear Channel Communications, the largest US radio broadcaster, for about 17.9 billion dollars after the deal was renegotiated down from its original 2006 terms amid the financial crisis. The buyout loaded the company with debt that it carried for years afterward, and Clear Channel's successor company iHeartMedia eventually filed for bankruptcy in 2018 to restructure that debt. The firms defended the deal as a necessary bet on a changing media landscape; critics pointed to it as another example of a private equity deal whose debt outlived the strategy that justified it.
Simmons Bedding Company, the mattress maker, filed for bankruptcy after being bought and sold by a succession of private equity owners over roughly two decades, each new buyout adding fresh debt on top of the last. A widely read 2009 New York Times investigation found that while the company's owners had collected hundreds of millions of dollars in fees and dividends over that period, Simmons itself had piled up debt and eventually failed, and thousands of jobs were lost in the restructuring that followed. Private equity industry representatives argued the case was an outlier and that most buyouts strengthen the companies they acquire; the reporting and subsequent academic studies used Simmons as a case study of value extraction outpacing operational improvement.
Toys R Us filed for bankruptcy in September 2017 and, after failing to restructure its debt, liquidated in 2018, closing all of its roughly 800 US stores and eliminating about 30,000 jobs. Employees and several members of Congress pointed to the 5 billion dollars of debt from the 2005 leveraged buyout as the central cause, and public pressure led KKR and Bain Capital to set up an 20 million dollar severance fund for laid-off workers in 2018 without admitting the debt caused the collapse. The private equity firms said the retailer had been undone by structural changes in retail; critics, including several US senators, called it a clear example of a healthy business destroyed by the debt used to acquire it.
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