Leveraged Buyouts: Gibson Greetings' $66M Payday to the RJR Nabisco War

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In January 1982 a group led by former Treasury Secretary William E. Simon bought greeting card maker Gibson Greetings for $80 million while putting up only about $1 million of its own money. Sixteen months later Gibson went public at $290 million and Simon personally took home around $66 million. This episode explains the mechanism behind that return, the leveraged buyout, in which the target company's own assets and cash flow secure the debt used to buy it, interest payments are tax deductible, and lenders split the risk between senior bank debt and higher yielding junior debt.

The story runs from Malcolm McLean's 1955 purchase of Pan-Atlantic and Waterman, when he used $20 million of Waterman's own cash to pay down half of his $42 million loan, to the bootstrap deals of Jerome Kohlberg, Henry Kravis and George Roberts at Bear Stearns. Michael Milken's junk bond blind pools fueled the 1980s corporate raiders, peaking with the $31.1 billion RJR Nabisco buyout in 1989. Then came the collapse of Robert Campeau's Federated, Drexel Burnham Lambert's 1990 bankruptcy, the mid-2000s revival with TXU at $45 billion, the subprime freeze of 2007, and the $55 billion take-private of Electronic Arts in September 2025.

• F. Ross Johnson's management group bid as high as $112 a share for RJR Nabisco, but KKR won the board's approval at $109.
• The RJR Nabisco deal held the record for the largest leveraged buyout for the next 17 years.
• Campeau financed Federated Department Stores with 97 percent debt, and the company could not afford to stock its shelves.
• The U.S. Bankruptcy Code's safe harbor protects public shareholders from clawbacks when a bought-out company later fails.
• Secondary buyouts, once seen by pension funds as distressed sales, became common in the 2000s because they offer quick liquidity.