Henry Kravis: How the Corporate Titan Rocked Wall Street

His name is synonymous with a

corporate

titan

, he is Nana vatado, he is an icon, he is in the same category as the Rockefellers of JP Morgan, a pioneer who played a decisive role in the creation of a two and a half trillion dollar industry. Henry Kravis has consistently gone further and helped define the private equity industry. Henry was ahead of everyone when it came to raising money, in a way he invented the business. Henry Kravis led a fierce battle that shocked Wall Street. Henry's decision entered the agreement as he did. Not only big fish entered.

Godzilla waiting from the ocean and laying waste to Wall Street, he's a competitive fighter and fun, he not only changed the game, he made it better. Henry was at the forefront of the '80s. If you look at Henry today, it's the same story. Henry is right on top there. I had no doubt that once he said he was going to win that deal, well, he was making the big decisions, making the decisions, he's been instrumental in taking risks over the years and pushing them into new areas that he opened up. Henry Kravis. a new frontier for investors who have accumulated a war chest larger than the gross domestic product of many small countries.

To this day his work or life is rarely discussed publicly and he refused to participate in this program. Kravis was born in 1944. in the oil patch of Tulsa Oklahoma black gold was everywhere his father was a petroleum engineer who made a fortune for his family Allen as Greenberg former president of Bear Stearns has known Kravitz for more than 40 years there was an important institution in this country that would make a loan against gas or oil reserves without first talking to his father Bryan Burrough is co-author of the landmark financial drama of modern business, the book Barbarians at the Door, from an early age clearly, as a man who had a very successful, he wanted to show that he was as successful as his father was Travis's path to success took him from high school in the Northeast to Southern California in 1963 he majored in economics at Claremont McKenna College in a recent commencement speech at his alma mater shared how growing up in the 1960s helped shape the course of his life.

It was a decade of tumultuous social, political, economic and cultural changes. I understood that these rapid and disruptive changes could help me see who I was and who I should become. Kravis returned to the heart of the business world. New York, after an internship picking stocks at a money management firm, his father urged him to return to school in 1967, he enrolled in Columbia's MBA program, but his focus was elsewhere, he wanted to do business, I wanted to make a lot of money, I didn't want to. Staying in Columbia once he got there, it was only when his old boss allowed him to keep his hand in the business in his spare time that Henry said, "Okay, I'll get a cotton picker's degree after college." .

He took advantage of an opportunity presented by his first cousin George Roberts was an analyst at the Bear Stearns retail store but wanted to move to San Francisco Henry got his job Luis Eisenberg is one of his oldest friends Henry and George are more than close, they can finish sentences the each other most of the time I once heard them disagree, but they end up coming to practically the same conclusions and they both share the same brilliance for their business, even though more than 3,000 miles apart the cousins ​​would work on the same team with his boss, a financial visionary that Jerry Colburn Henry creates.

His timing was surprising because he was lucky enough to get a job with his Farage colleague Jerry Kohlberg, who is doing these strange little deals that no one had ever heard of, called bootstrapping deals that would later become much better known as buyouts. leveraged. Kohlberg saw opportunities where other investment bankers did not. In leveraged buying, it's very simple: it's when a company buys itself, takes a lot of the excess from them, makes them lean on me, borrows a lot of money against the company's assets to pay that money back, and usually sells the assets. he came up with the idea of ​​pursuing family businesses.

People who want to retire didn't necessarily want to sell to their competition. people who are very concerned about the people who work for them. His idea began to bear fruit in acquiring income from the industrial spare parts company. international for almost ninety-two million dollars, generated the highest fee Kravis established. Bear Stearns had never seen nine hundred and fifty thousand dollars in three years. Kravis ran his own deals and became a partner at Bear Stearns at age 30 to make an LBO work. You don't have a trace of sentimentality, you have to be able to cut and burn.

I would say Henry's skill set was ideal for LBO. He has a very accomplished and cold analytical eye. Henry thinks nothing of taking down a CEO who doesn't do it. He didn't hand out his numbers at dawn, but on LBO returns it took years of a lifetime in Bear Stearns' quick-profit culture to say they had no patience with Jerry's deals is like saying it tends to get hot in Texas and that By summer it was a matter of time before things turned ugly. Bear Stearns management rejected Kohlberg's demands to start a separate LVL department. The three men quickly decided that their time at the legendary investment bank was over.

I felt very bad about that. I have often said that I don't think we have worked hard enough. To keep them all, I must say that I regret it, I regret it since I think it was difficult as those types of movements are, but Henry asked a lot of questions and he asks a lot of questions of himself, but there are very few movements of doubt that he makes. 1976 Henry Kravis his cousin George Roberts and his mentor Jerry Kohlberg made a big bet at a bitter party that they abandoned Wall Street powerhouse Bear Stearns, we'll start this company of our own and focus on something that never existed. done before the time comes when we call bootstrap acquisition.

I really want to do it. I want to do it with George. Let's go for it armed with only his novel idea to make money and $400,000 from backers for overhead costs. On May 1, new Wall Street private equity firm KKR Investments opened its doors. Kravis had to immediately convince potential investors and LVO targets that he could earn big returns. Richard Beatty has been an advisor to Kravis since the early 1970s. Most people would say what he wants to say. How much debt does this company have? How can you do that? Aiming for success at Bear Stearns. He convinced investors to give him money.

Jim Robinson. The former American Express president has been friends with Kravis for more than 30 years. I thought this bright young man really was a very smart investment banker who was going in a new direction that was exciting, a new way to use Wall Street, mobilize capital to go into companies and help build them into even stronger and better companies, from the world of pensions to others who are interested in being limited. Partners Henry and his cousin George looked for companies with predictable cash flow and growth potential. Their approach was to try to work with the existing administration.

Kravis wanted them on board for a smooth transition. John Mack is chairman of the board of Morgan Stanley and knew Henry. Kravis for almost 20 years, he's great at delivering that speech that talked about that vision, that story to a board that he meets knowing what he's talking about, streaming professional, they're going to know the facts and they're going to have a vision that he's going to lay out. facing the board and what he is thinking, why he is thinking and what the outcome will be, he can be a force to be reckoned with in a deal and you can see his excitement in him in 1979, KKR made their first major purchase of a auto parts maker that dead industries at the time was the first purchase of a major public company in the history of Wall Street, but it would be just the first of many for Kravis Kohlberg and Robert's 81 82 83 were fantastic years gave them credibility in the market gave him credibility with the banks with the insurance companies in 1983 KKR 20% participation in each deal made Kravis a billionaire that same year KKR was raising an unprecedented billion-dollar investment fund the innovative fund would come to intimidate its competitors was an arrow that was later summed up in a famously simple line from the movie: Wall Street's greed, for lack of a better word, is good and was just getting started in 1984, credit was easier to get because of its high risk, low-rated junk bonds became the vital driver for their LBOs. get a like that the importance was the speed that allowed Henry and George to move on a dime overnight to find financing to make a deal work as new deals came in, as did invitations to events glamorous in New York, cracks of second marriage with fashion hopefuls designer Caroline Rome catapulted them into the society pages the couple often attended gala events with their good friend Donald Trump Henry was a very glamorous figure in those early days He was a very, very basic guy with a brilliant mind, but he always seemed to be surrounded by glamorous surroundings, Kravis was now a pillar of New York's social elite with a lot of money.

Henry had no idea what his association with Caroline would bring to the world in appearances in the social columns. They looked and saw a rich man. They saw that he was overreaching. and these things became symbolic of the '80s and Henry became a symbol of the Aydens. He hated, hated, hated it. In 1985, KKR and Henry Kravis personified the Wall Street boom. The privately held company was the world's most successful leveraged buyout firm in investment management. fund valued at a billion dollars with his success The competition of Kim impersonators created a whole new world for KKR they can no longer take the time to sit and smoke a pipe with George, the CEO, in White Plains, suddenly, the agreements they had to close faster, someone else would do it will make them for the first time Henry and George pushed KKR into competitive deals hostile deals hostile deals like Beatrice Foods, the parent company of some of America's best-known brands, in 1986 they acquired the giant conglomerate for 6.2 billion dollars, again breaking records at the Wall.

Street KKR wasted no time in dismantling Beatrice by selling division by division to pay down debt. Travis and his cousin did well. They earned forty-five million dollars in fees. Suddenly, with rich fees and rewards, there was a split within KKR. Kravis and his mentor Jerry Kohlberg locked in a battle for the soul of their company On May 18, 1987, Jerry Kohlberg announced he was leaving KKR in the press, hinted at a decline in ethics at his former company and told the New York Times that he would stick to agreements where reason still prevails. Jerry's departure was very painful for the three of them and for all of them it was a very sad thing when Jerry was basically removed from the business he had found however when that happened it left Henry and George in clearer control Kravis and Roberts were exactly where they wanted KKR still He was saddled with the company's bloated food division.

Kravis was hungry for a new box office hit in 1987, he found the perfect acquisition. candidate RJR nabisco the cookie and tobacco company united states is the 19th largest public corporation and its stock price was trading in the $40 range and would soon prove undervalued. RJR owned two giant companies. A buyer could sell Nabisco to pay off debt and keep our son's hugely profitable cigarette brands, Winston and Camel. They have addicted clients. For God's sake, they make tons of cash, everyone wanted to get that deal done, and they had a CEO who would listen to just about anything.

Ross Johnson was very, very generous to the people he loved and provided a plane for someone to go to a golf tournament, sometimes maybe. He did too many things with RJR Nabisco's assets but he had good intentions. F Ross Johnson needed to boost his company's stagnant stock price after the Black Monday market crash of 1987 and problems with the company's new product then there was RJ Reynolds' smokeless cigarette years in the making hit the market. with a huge thud nothing nothing was made private with an LBO it was his chance to revive the company not to mention make a personal fortune the stage was set Henry Kravis wanted in Kravis had approached Johnson with this same idea a year earlier, but he had One problem: You'd be hard-pressed to find two

corporate

executives very different from Henry Kravis and Ross Johnson.

Henry is very controlling and serious, and Ross looks like anything, but in terms of personal style, he wears a little necklace and you. I know it's like Dean Martin, they were destined to conflict. Johnson and his management team decided to act on his behalf and partner with Shearson Lehman, an investment bank without thekk r experience in LBO. On October 20, 1988, they made a proposal for seventeen billion dollars. RJR leveraged buyout n olds were offering $75 per share, an increase of almost $20 over the stock price Henry Kravis was outraged because the war had started, he was the king of that business at the time and there is no time when he felt personally offended that a bunch of little upstart nobodies in the IBO business could think they could walk into their territory and agree to the biggest deal ever proposed.

Johnson's group attempted to make peace with Kravis, but talks went nowhere. Just four days later, Kravis and KKR shocked the financial world with their own offer of twenty billion dollars, raising the price to $90 per share. Henry came into the deal as he did it wasn't just bigwigs coming in it was Godzilla waiting from the ocean and stomping on Wall Street he wanted to scare away potential buyers Jim Robinson was a director of American Express, the parent company of Shearson Lehman at the time. I was on the other side of the fence. Henry and George, when they get personally involved in deals, you know you're dealing with a capable adversary, but the RJR.

The board rejected KK R's offer, while Johnson and his team were surprised by Henry Kravis as an aggressive move, they did not back down and counterattacked. With another offer of $92 per share, almost $21 billion everything on Wall Street came to a halt. he was like two gunmen in the

street

everyone wanted to watch or everyone wanted to grab a gun the media loved a battle they loved a war they loved one The winner loved the loser, advertising 24 hours a day in a scrutiny on the biggest deal in history stunk for Ravis. Nobody likes to see their deal negotiated in the press every day and be blown out of proportion when you play that game.

You're going to have people shoot you, you won't have people attack you, you learned to have a thick skin, the RJR Board also rejected Johnson's proposal, although to move the deal forward, they told all potential bidders that they had 10 days to propose. another offer, the confrontation between the bidders intensified. I think Henry could tell you today that part of what consciously drove him was the desire to win, the deadliest sin you can have in the acquisition business, six weeks after Johnson's initial bid for The Giant Kravis and Roberts Firm They were locked in a marathon last-minute bidding session.

Their final offer was a staggering $109 per share, almost double their initial price. Now it became a waiting game. There is a lot of tension and everyone is tired. I remember. that was very late at night when Ford finally made their decision oh it all ended on November 29, 1988 a few minutes after 10:00 at night the RJR board of directors had made their decision Henry Kravis would win the day keh keh They are the best in the business and they know what they are doing Johnson attempted to engineer the biggest inside job in history. He would have earned at least $100 million for his personal bank account if the deal had worked, but a Wall Street tycoon named Henry Kravis took it away from him.

The company is gone and that's it for Mr. Johnson KKR made seventy-five million dollars in fees, clearly winning RJR took Henry to the top of his reputation on Wall Street, but more than anything, I know from talking to him at the time that what they felt most was fear, fear to not be able to do it. be able to make this work, ultimately those fears turned out to be well founded, you, KKR, were the winner in the epic trade battle for RJR nabisco, but for Henry Kravis the spoils were short-lived, they finally won that prize, at the long it didn't work.

While one might have expected the consequences of the mega deal to be catastrophic, it had not worked perfectly and there was a lot of pressure to do things right and generate profits for their investors. The company is often congratulated for making a great acquisition and he has always said save it, congratulate me when we dated in 1991 while he was trying to take our son. Out of his tailspin Kravis faced a family tragedy Harrison His 19-year-old son from a previous marriage died in a car accident His life has not been simple His personal life has had a strong sense of tragedy in losing his son, you can try imagine but you can't really go there two years later Kravis was all over the tabloids when he divorced his wife of seven years carolyn rome remarried marie-josée drew a prominent economist and philanthropist in 1995 cigarette price wars and litigation and tobacco infatuations Are Jr's profits generating a dismal annual rate of return of less than 1%?

KKR decided that the corporate giant was no longer worth holding on to, they divested themselves of their investment, and one of Wall Street's most historic battles, the purchase of RJR Nabisco, came to an end. You asked if the RJR deal is the best on Wall Street. I don't think anyone would call it his finest moment. I think of anything that anyone has argued was the worst in its lowest hour, its most degrading hour, an hour in which all the stereotypes that predominate in America believe that Wall Street is doing things out of ego and greed seems so clearly true for the rest of the country after some rocky deals in the '90s Kravis and KKR ran into trouble in 2001, one of their holding companies, Regal Cinemas, went bankrupt and cost them $500 million.

Kravis, bloodied but unfazed, admitted that they needed to change the way they did business, and after years of rebuilding, they made headlines again in 2006, purchasing the thirty-three billion dollar HCA hospital chain Jason Kelly is a private equity reporter at Bloomberg News takes aback with the HCA deal in 2006, KKR surpassed that record with TXU DL in 2007, so they came back and came back fierce in 2007, they began a three-year effort to list the company on the New York Stock Exchange and finally going public with a disappointing debut in 2010 going public is an extraordinarily difficult decision for these guys.

What's uncomfortable for this company that he and George have built over the years is showing any part of the secret sauce to the public. KKR's portfolio includes 58 companies and manages assets totaling more than $55 billion, but even that doesn't capture the breadth of what they have $218 billion in revenue across all the companies they own, from retailers to toys to energy producers in Texas and hospital chains. Look, there are two types of people on Wall Street, those who retire to Florida and then those who don't clearly one of the most important things to him is his legacy. I don't think there will ever be an expectation that every ball will leave the park, but there is one place that can knock every ball out of the park.

He is developing a team with a deep bench in KKR and they are going to hit a lot of balls out of the park if you have a hope, a belief and a dream followed no matter. what hitter is an absolute pioneer is an innovator is an icon like Morgan like the Rockefellers Henry is a great guy with an incredible instinct for what will happen in the future he can look and see better than almost everyone and that is a tremendously good trait when deals with business