The New Financial Capitalists: Kohlberg Kravis Roberts and the Creation of Corporate Value / Edition 1

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Overview

A widespread misunderstanding concerning leveraged buyouts (LBOs) is the belief that they accomplish little but the ruin of companies and the loss of employment. How else could it be? Until recently, journalists, including much of the business press, have depicted LBO specialists as generally greedy, if not sinister, forces whose activities compound the dislocations of modern American economic and social life. This kind of criticism reached a crescendo in the press and in Congress at the end of the 1980s, and Kohlberg Kravis Roberts found itself in the middle of the controversy. Based on interviews with partners of the firm and on unprecedented access to KKR's records, George P. Baker and George David Smith have written a definitive account of how KKR has approached LBOs in a book that will appeal to the specialist and general reader alike. The authors focus on KKR's founding, evolution, and innovations as ways to understand issues in modern American business. In examining KKR as a unique form of enterprise--one that subscribes to a set of alternative perspectives on business and value creation--the book bridges the gap between public perception and academic knowledge of how financial innovation impacts economic life. The firm's approach to leveraged buyouts was an important aspect of the corporate restructuring and governance reforms in the American economy from the mid-1970s through 1990 (the years of what some have called the "leveraged buyout movement"). KKR and other companies fundamentally altered the prevailing perception of the role of debt in the modern American corporation and established an alternative model for organizing and managing corporate enterprises. KKR financed the companies it acquired with high levels of debt, while linking their ownership to management. It then imposed rigorous monitoring by the board of directors over the companies in its portfolio. This combination of factors forced managers to concentrate not on growth but rather on how to achieve value through whatever means was most appropriate to the company's circumstances. The purpose of the leveraged buyout was to realize, or "create," value in companies by reforming their management systems. KKR's approach to restructuring the relationship between owners and managers in a highly leveraged firm rested on a basic principle: Make managers owners by making them invest a significant share of their personal wealth in the enterprises they manage, and they will have stronger incentives to act in the best interests of all shareholders.
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Editorial Reviews

From the Publisher
"This volume is an excellent addition to the literature on mergers, business history, and corporate strategy." H. Mayo, The College of New Jersey

"...an insider's view of the major deals for which KKR is known, including the $31 billion buyout of RJR Nabisco, much of which had not been written about so thoroughly before." Teresa McUsic, Union-Tribune

"...an insider's view of the major deals for which KKR is known, including the $31 billion buyot of RJR Nabisco, much of which has not been written about so thoroughly before." Teresa McUsic, Herald-Leader

"...an insider's view of the major deals for which KKR is known, including the $31 billion buyout of RJR Nabisco, much of which has not been written about so thoroughly before." Teresa McUsic, Orange County Register

"...The New Financial Capitalists is a cerebral book whose greatest appeal will be to financial intellectuals.... ...the major contribution Baker and Smith make to understanding of the KKR phenomenon is their clear linking of the doings of last decade's LBO deal makers to this decade's astonishing stock market ascent." Michael Silverstein, Bloomberg

"The results are a major insider's view of the major deals for which KKR is known, including the $31 billion buyout of RJR Nabisco, much of which has not been written about so thorughly before." Leader-Telegram

"Baker and Smith take readers through a number of these deals, showing not only their initial financial setup, but also what KKR did to improve their value the years. In this analysis, the writing team obtained unprecedented access to the files and personnel of a very private firm." Teresa McUsic, Post & Courier

"Baker...and Smith...provide a well-documented history of Kohlberg Kravis Roberts (KKR) and its development of the leveraged buyout (LBO). This volume is an excellent addition to the literature on mergers, business history, and corporate strategy." Choice

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Product Details

  • ISBN-13: 9780521642606
  • Publisher: Cambridge University Press
  • Publication date: 10/20/1998
  • Edition description: New Edition
  • Edition number: 1
  • Pages: 257
  • Product dimensions: 5.98 (w) x 8.98 (h) x 0.91 (d)

Table of Contents

Introduction; 1. Context and overview; 2. Recasting the role of debt: creative leverage and buyout financing; 3. LBO governance and value creation; 4. When risk becomes real: managing buyouts in distress; 5. KKR as an institutional form: structure, function and character; Conclusion.
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