George Bush: The Unauthorized Biography - Get a Free Blog

Milken kept the warrants for his own account, rather than offer them to his junk bond
buyers in order to get a better price for the Beatrice junk bonds. Later in the same year,
KKR bought out Safeway grocery stores for $4.1 billion, of which a large part came from
Milken.
After 1986, Kravis and Roberts were gripped by financial megalomania. Between 1987
and 1989, they acquired 8 additional companies with an aggregate price tag of $43.9
billion. These new victims included Owens-Illinois glass, Duracell, which may not keep
on running as long as many think, Stop and Shop food markets, and, in the landmark
transaction of the 1980's, RJR Nabisco. RJR Nabisco was the product of a number of
earlier mergers: National Bisucuit Company had merged with Standard Brands to form
Nabisco Brands, and this in turn merged with R.J. Reynolds Tobacco to create RJR
Nabisco. It is important to recall that R.J. Reynolds was the concern traditionally
controlled by the famnily of Bush's personal White House lawyer, C. Boyden "Boy"
Gray.
The battle for control of RJR Nabisco was lost by RJR Nabisco chairman Ross Johnson,
Peter Cohen of Sherason Lehman Hutton and the notorious John Gutfruend of Salomon
Brothers. KKR opposed this group, and a third offer for RJR came from First Boston.
The Johnson offer and the KKR were about the same, but a cover story in the Luce-Skull
and Bones Time Magazine in early December, 1988 targetted Johnson as the greedy
party. The attraction of RJR Nabisco, one of the twenty largest US corporations, was an
immense cash flow supplied especially by its cigarette sales, where profit margins were
enormous. The crucial phases of the fight corresponded with the presidential election of
1988: Bush won the White House, so it was no surprise that Kravis won RJR with a bid
of about $109 per share compared to a stock price of about $55 per share before the
company was put into play, giving the prebuyout shareholders a capital gain of more than
$13.3 billion. How much of that went to Boy Gray of the Bush White House?
The RJR Nabisco swindle generated senior bank debt of about $15 billion. The came $5
billion of subordinate debt, with the largest offering of junk bonds ever made. Then came
an echelon of even more junior debt with payment in securities and junk bonds that payed
interest not in cash, but in other junk bonds. But even with all the wizardry of KKR, there
could have been no deal without Milken and his junk bonds. The banks could not muster
the cash required to complete the financing; KKR required bridge loans. Merrill Lynch
and Drexel were in the running to provide an extra $5 billion of bridge financing. Drexel
got Milken's monsters and many others to buy short-term junk notes with an interest rate
that would increase the longer the owner refrained from cashing in the note. Drexel's
"increasing rate notes" easily brought in the entire $5 billion required.
In November of 1986, Ivan Boesky pleaded guilty to one felony count of manipulating
securities, and his testimony led to the indictment of Milken in March, 1989, some
months after the RJR Nabisco deal had been sewn up. In order to protect more important
financial players, Milken was allowed to plead guilty in April 1990 a five counts of
insider trading, for which he agreed to pay a fine of $600 million. On February 13, 1990,
Drexel Burnham Lambert had declared itself bankrupt and gone into liquidation, much to