His Interest Is in Controlling
Nobody tells Bennett LeBow what to do. Starting in the morning, the 58-year-old renegade financier likes to cook his own breakfast so he can eat exactly what he wants. All day long, LeBow demands control, either when he’s losing his cool stuck in traffic or when he’s provoking corporate chieftains with audacious takeover bids.
On Wednesday, the majority shareholder of Liggett Group, the smallest of the nation’s five major tobacco companies, struck again, breaking with the $50-billion-a-year tobacco industry by agreeing to settle a class-action lawsuit that claims the industry knowingly sells addictive nicotine products.
“Bennett LeBow sets the agenda, no matter what the issue,” said Stanley Witkow, vice president of MAI Systems Corp., an Irvine computer networking systems company that LeBow once controlled and, some critics say, ran into the ground. “This guy likes to be in control.”
The first-ever tobacco settlement could arm LeBow in his effort to gain control of No.-2 cigarette maker RJR Nabisco Holdings Corp. and force it to spin off its Nabisco food unit.
“He’s trying to do the best for himself, with morals aside,” said Stephen Yacktman of Yacktman Asset Management, an RJR shareholder.
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Chiding LeBow as lacking in morals is hardly the harshest criticism levied against the stocky, bearded Philadelphia native.
No surprise there: Two of his public companies--MAI Systems and New Valley Corp.--filed for bankruptcy. His Miami-based Brooke Group Ltd., Liggett’s parent, has reported losses for years and recently had to restructure much of its $400-million debt.
At MAI, which LeBow acquired through an investment partnership in 1985, his tenure was marked by a brief fling with success followed by several years of wrenching financial difficulties, hundreds of layoffs, turmoil in the top ranks and, finally, bankruptcy reorganization in 1993.
Angry Brooke shareholders repeatedly claimed that LeBow improperly helped himself to that company’s assets, allegations he denies.
He has also been criticized for his ostentatious lifestyle that has included a yacht, jets, several pricey homes and elaborate entertaining.
Shortly after acquiring MAI Basic Four, as it was called then, LeBow used the company to launch an aggressive hostile takeover bid for Massachusetts-based Prime Computer, a company three times MAI’s size. But after more than a year of legal wrangling in which MAI ran up more than $25 million in expenses, the effort failed when Prime agreed to be bought by a white-knight suitor.
MAI blamed costs of the aborted takeover battle and its 1990 switch from computer making to software development for a $64.5-million loss in 1991 that also resulted in the layoffs of about 800 workers.
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Rapid expansion in the 1980s helped the company run up more than $145 million in debt that pushed it into Chapter 11 bankruptcy for seven months in 1993.
The company emerged from the bankruptcy early in 1994 and refocused its efforts on designing and installing computer networking systems. LeBow quit as chief executive in 1993, then resigned as chairman and left the board last year. For 1995, MAI Systems posted a $10.2-million profit.
Though the company suffered under LeBow’s control, the investor didn’t. By 1988, he had recouped his $10-million cash investment just from MAI stock dividends, and his shares at the time showed a paper profit of $84 million. MAI’s common stock closed Thursday at $7.25 a share on the American Stock Exchange, making the 1.65 million shares LeBow still holds worth almost $12 million.
The son of an insurance man and a schoolteacher, LeBow graduated from Drexel University with an engineering degree and started his own computer company in 1961.
Six years later, he rescued his company from failure through a merger and financial restructuring. In the ensuing two decades, he focused on troubled companies.
“The returns are higher,” he told Forbes magazine.
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LeBow, who says he grew up poor, began to spend money as soon as he had it.
An avid scuba diver, he moved to south Florida in the late 1980s from New York, buying a home on tony Fisher Island.
In early 1989, according to numerous press reports, LeBow flew 150 friends on a chartered jet to London for a $3-million bash to celebrate the maiden voyage of his custom-built yacht, modeled after Queen Victoria’s private yacht.
The spending blitz came as financial pressures mounted. In November 1990, LeBow combined several unprofitable interests into Brooke Group, which was the renamed Liggett cigarette company LeBow acquired in a 1986 buyout.
Within months, LeBow was drawing millions of dollars in salary and personal loans from Liggett.
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In 1992, Securities and Exchange Commission filings show LeBow drew a $1.5-million salary from Brooke while the company reported a $6-million loss. He also received loans and lines of credit from Liggett and Brooke topping $6 million.
LeBow, who has faced scores of shareholder suits, counters that he repaid the loans with interest, and that investors who stayed with Brooke from 1991 to 1995 reaped an annual return of 27%.
LeBow is a most unlikely shareholder activist in his fight with RJR, the focus of a titanic takeover contest between management and buyout firm Kohlberg Kravis Roberts & Co.
Brooke Group proposes an insurgent slate that includes LeBow to replace for RJR’s board. If elected, the new board would immediately spin off the company’s food business. LeBow claims this would benefit shareholders, who earned a 4% compound annual return on their investment in RJR in the past four years.
The slate is expected to be voted on April 17 at RJR’s annual meeting.
Fiends say LeBow has mellowed and sold his yacht, two jets and two of his homes.
One thing hasn’t changed.
Says Tom Hoenes, an analyst at Fitch Investors Service: “Bennett LeBow is going to look after his own interests to the absolute exception of everything else, including shareholders and employees.”
