"If I Fail, I'm on the Hook"

By Frederick Ungeheuer Ross Johnson

Since putting his company in play six weeks ago, RJR Nabisco president Ross Johnson has refused all public comment. Last Friday he changed his mind and met with TIME senior correspondent Frederick Ungeheuer in Jupiter, Fla.

Q. How much of a reward do you expect for yourself?

A. This is the question on which I'm just getting murdered.

Q. That's why I'm asking it.

A. My job is to negotiate the best deal that I can for my people. So I negotiated a deal where we'd get 8.5% and then have incentives that went to 12% and then to 18.5% if we hit certain targets along the way.

Q. The proposal bankers were looking at only had seven people in it.

A. This is absolutely wrong. I wasn't going to take 18% of this company for seven people. You could multiply and get these incredible figures, that I could make a billion dollars. What was in the newspapers was only the seven that I could identify because they were the only ones working on the deal. If I'd known it was going to be in the newspapers, I would have said, "Look, there's going to be 15,000 people." They will get at least 5%. I always saw myself in there at around 1%. In seven or eight years, I could make $100 million.

Q. Does any chief executive deserve that kind of reward?

A. If he is an owner, he does. It's hard to answer. Actually, it's kind of Monopoly money. But we're putting in $20 million, which we had to borrow on a ^ recourse loan. So if I fail, I'm on the hook. But making $100 million was not my motive by any stretch of the imagination.

Q. What can a middle manager or, say, a secretary expect?

A. We figure that somebody down on the floor, upper level, probably could get something that today was worth maybe $800 to $1,000. If we hit the targets, it will be worth $3,000 in five years.

Q. What about middle managers?

A. They'd get $25,000.

Q. Members of the RJR Nabisco board of directors have described you as an inside raider, because you initiated a leveraged buyout as the company's chief executive. What is your response?

A. The obvious response is no, but why no? I haven't been the most orthodox CEO, because I figure if you always run by tradition, I would probably still be an accountant for the General Electric Co. In three years, we averaged earnings up nearly 70%. Nothing happened ((to the stock price)). Then we had Black Monday. Stocks went down. It really became evident that this business, especially the tobacco business, should be run as a private business. The shareholders, who are the people who invest in this thing, aren't making it.

I went to the board on Wednesday night, Oct. 19. All members of the board were there. I said I'm not going to do this unless you tell me to go ahead. They studied it for an hour to an hour and a half and came back and said, "Ross, is this frivolous?" I said, "Define frivolous." They said, not frivolous would be anything north of the highest that the stock of this company has ever traded at. That is about $71 per share. I said, "It is north of that." They said, "Well, then you should make the bid."

Q. Any chief executive has inside information about his company, which allows him to gauge its value better than any outsider. Why, then, did you first offer $75 per share when you are now prepared to pay $100 per share?

A. Times change. We looked at $75, and, remember, I had no financing. It was about a 30% premium. And we would not have disposed of as many companies as we will have to dispose of right now. We started at $75, but I knew we would probably get negotiated up.

Q. Shearson and Salomon, the investment firms, would have to put up $18 billion to $20 billion and trust you with that for five years?

A. Exactly.

Q. With 50% of the vote?

A. They could throw me out too. I figured that was a good test.

& Q. What about the employees? You say that at least 800 will have to be laid off? Isn't an LBO very hard on employees?

A. While you are going through the transition period it is. If you take 120,000 RJR Nabisco people, yes, there will be some dislocation. But the people that I have, particularly the Atlanta people, have very portable types of professions: accountants, lawyers, secretaries. It isn't that I would be putting them on the breadline. We have excellent severance arrangements.

Q. The food business will be sold to pay down the leverages, but then you also take the risk of not being able to sell these companies. You see the trouble that Beatrice is running into.

A. Oh, you're telling me. That's right on my ear, whether we do that or don't do that.

Q. So, there's a huge risk involved?

A. There is risk. Less at $75 per share than at $100 per share. At $100 per share, I will have to sell off more businesses. But our tobacco business can stand a lot of leverage. It's the sheer size of this thing that makes everybody shake their heads. I've felt like an Iranian hostage for the past 43 days. You say, would you have done this if you had it to do over again? And my answer is yes. I can look every day into the mirror and say this was the right thing to do for the shareholders. If we run it, great. If somebody else runs it, just as great. Let the market test it.