Biography: Henry Kravis
Financier and Investor

Henry Kravis was born in Tulsa Oklahoma. His father was an oil engineer and onetime oil business partner of Joseph P. Kennedy, father of the President. Young Henry attended prep school in the east, and went to Claremont College in California, where he majored in economics and was captain of the golf team.

In 1969, he received an MBA from Columbia University and joined the staff of Bear Stearns, along with his cousin, George R. Roberts. Both young men worked under Jerome Kohlberg, Jr., the corporate finance manager.

Kohlberg taught them what he called "bootstrap" acquisition. He sought out undervalued small companies, or undervalued operations within larger companies, and helped the management of these concerns borrow the capital to buy the business themselves. Kohlberg saw great opportunities he felt the investment banking community were overlooking. In 1976, when Bear Stearns would not appropriate the funds for these projects, Kohlberg resigned and took his two young associates with him. Together they founded the investment banking firm Kohlberg Kravis Roberts & Co. (KKR).

For the next six years, KKR created a series of limited partnerships to acquire companies, reorganize them, sell off some assets or subsidiaries, and resell the company. Typically, KKR put up ten percent of the buyout price out of its own funds, and borrowed the rest from investors by issuing so-called "junk bonds." In the 1980s these bonds were usually underwritten by the investment bank Drexel Burnham Lambert.

In some cases KKR helped company management and a group of limited partners buy up all the stock of a publicly traded company and take it private. They then sought to streamline the company through layoffs, or by disposing of unprofitable or inefficient subsidiaries. In other cases, they took the company private only long enough to make it lean and profitable and then offered its stock to the public again. A.J. Industries, Lily-Tulip and Houdaille Industries were some of the more spectacular leveraged buyouts of the late '70s and early '80s. Houdaille was the first major company listed on the New York Stock Exchange to be taken over in a leveraged buyout. In these years, KKR averaged $50 million a year for itself and earned a 36 percent return on investment for its limited partners.

In 1984, KKR pulled off its first billion-dollar buyout: Wometco Enterprises. In the same year, they introduced the public tender offer. The firm and its partners paid $465 million for sugar refiner Amstar and sold it in 1986 for $700 million. When takeover artist T. Boone Pickens attempted a hostile takeover of Gulf Oil, KKR attempted a rescue, and offered $12 billion, but were outbid by Chevron.

KKR next intervened in a struggle over Beatrice Companies, a conglomerate based on a food-processing business. KKR outbid the competitors, offered the management generous retirement packages and proceeded to dismantle the conglomerate. With most of the subsidiaries sold off, the core business remained extremely profitable and offered investors a seven-fold return on their money.

In this venture, KKR departed from their usual role of "white knight" protecting company management from a hostile takeover. While this acquisition was not exactly hostile, it was certainly aggressive, an approach which came to be known as the bear hug acquisition. Safeway was acquired in a white knight operation. The buyout of Owens-Illinois was more ambiguous. The management favored the buyout, outside directors of the company opposed it. In 1987, Jerome Kohlberg, Jr., resigned from the firm, and Henry Kravis succeeded him as senior partner.

In 1988 KKR won a five-week bidding war to control RJR Nabisco, the 19th largest corporation in the U.S. This giant tobacco and food conglomerate owned such familiar brands as Camel, Winston and Salem cigarettes, Wheat Thins and Ritz Crackers. Oreo and Fig Newton, Del Monte vegetables, Planter's Peanuts and LifeSavers. Kravis and his group bought the tobacco and food company for $25 billion, nearly double the previous record sale price of a commercial enterprise.

Since its inception, KKR has spent more than $73 billion, acquiring more than 45 companies. In the same year as the Nabisco buyout, KKR successfully shielded Texaco from a hostile takeover, purchased the Stop and Shop grocery chain and bought the Duracell battery company from Kraft Foods. Kravis now sits on the board of directors of Duracell, Safeway, Borden, Owens-Illinois, AutoZone, UnionTexas Petroleum, and American Re-Insurance Company.

In addition to his business activities, Kravis has made contributions as large as $10 million to New York's Mount Sinai Hospital and the Metropolitan Museum of Art. He is on the board of trustees of the Metropolitan and of the New York City Ballet. He is chairman of the Board of Trustees of New York's public television station and was New York State Co-Chairman of the presidential campaign of George Bush.