News: Analysis & Commentary: PROXY BATTLES
NO ONE IS LAUGHING AT BEN LeBOW NOW
It has been quite a year for Bennett S. LeBow. The Miami financier has cleaned up the tangle of companies at Brooke Group Ltd., his primary holding company, by spinning off a computer subsidiary to shareholders and shedding a stake in a sports trading-card company. He has spent money, too, snatching up a small broker-dealer/investment bank and an interest in a Brazilian airplane manufacturer.
Then there's his somewhat larger quarry: RJR Nabisco Holdings Corp. Together with financier Carl C. Icahn, LeBow has amassed a 4.8% stake in the food and tobacco company. And on Oct. 30, the two announced their intention to propose a nonbinding resolution to split up RJR's two businesses. If RJR doesn't respond to a positive vote on the measure, LeBow threatens to replace its directors with his own. "Why wait?" says LeBow. "There's value there to be unlocked."
A few months ago, such bluster seemed laughable. LeBow, after all, looked like a corporate loser--a raider who had never raided much at all. The Philadelphia native, 57, founded a computer company in the 1960s, rescued it from financial disaster, then sold out to a rival. Later, he began putting together small deals, often targeting troubled companies in bids financed largely through the Michael Milken junk-bond machine. Mostly, his overtures ended in rejection (table).
TOUGH TALK. Now, however, RJR appears to be taking LeBow and Icahn very seriously indeed. In a strongly worded rebuff issued on Oct. 31, the company reiterated that it will spin off Nabisco "at what would be the right time" and termed LeBow's attempt to force a separation now "not only imprudent but...irresponsible." Says CEO Charles "Mike" Harper: "I don't scare easily, and I don't think he does either, so we are going to buck heads."
What's LeBow up to? He still has lots of cash to burn, flush with much of the $382 million in profits left from the sale last November of his New Valley Corp.'s Western Union money-transfer business. Indeed, some of the cash from that deal was used to amass his 5 million RJR shares.
More important, though, may be the fate of LeBow's own tobacco business, Liggett Group Inc. Liggett, the nation's fifth-largest cigarette maker, is a weak player in an increasingly tough market. Its share of the low-end market has dropped from 9.9% in 1991 to 5.4% last year, according to the company. And sales of higher-margin branded products, including L&M and Chesterfield, represented just 32% of net sales in 1994, down from 47% in 1991.
Harper contends that LeBow approached him in May with a suggestion to split the companies and merge Liggett with RJR's tobacco business. Later, Harper says, LeBow suggested that RJR buy Liggett outright for $400 million, a price RJR considered grossly inflated. LeBow denies he ever talked to RJR about an outright sale. On the other hand, he says a combination with Liggett would present a compelling justification for the split-up of RJR's businesses. That, he says, would allow the spin-off to be treated as a tax-free transaction.
While Harper says RJR wants to spin off Nabisco, the issue is timing. The thicket of tobacco liability lawsuits may clear by next year, allaying concern that shareholders of the food company could eventually be found liable for damages. Even so, RJR says it will not split the companies until yearend 1998, or until both can carry investment-grade debt ratings, whichever comes first.
BIG JOB. There's still plenty of skepticism about LeBow's motives on Wall Street, but his interest in RJR has sent the company's shares up 15%. In part, the rush signals investors' frustrations. Gregory L. Jackson, portfolio manager at Yacktman Asset Management Co. in Chicago, which owns about 1.8 million RJR shares, says he would vote for a spin-off, after rejecting a similar resolution last spring. The difference now? "Management's poor ability to run the company. I believed in Harper last time. I don't believe he is doing the right things this time," Jackson says. "He is trying to turn a tobacco company into a food company."
LeBow will have to work harder to convince the likes of Thomas A. Carter, an analyst with USAA growth fund, which owns 3.9 million RJR shares. Carter says he wouldn't support Icahn and LeBow in their bid to force a breakup or higher valuation. His argument: Cash is better invested in the company's growing international business than in a higher dividend. And the food company isn't at its strongest right now. "It might be better to wait," Carter says. LeBow, in other words, should cool his heels a while. It's just not what he wants to hear.
Bennett LeBow's major forays
WESTERN UNION LeBow purchased the company in 1987. Bondholders forced it into Chapter 11 in 1991. Its money-transfer business went for $1.2 billion in 1994; part of the $382 million profit from the deal helped finance LeBow's purchase of RJR Nabisco shares.
AMERICAN BRANDS LeBow tried in 1988 to get the food company to buy his Liggett Group. Rebuffed, he acquired a small stake and threatened a takeover. It never happened.
PRIME COMPUTER In 1989, LeBow launched a hostile bid for the minicomputer maker through his MAI Systems Corp./Basic Four. Prime found a white knight. MAI filed and emerged from bankruptcy protection in 1993.
DATA: COMPANY REPORTS, BUSINESS WEEKBy Gail DeGeorge in Miami and Lori Bongiorno in New York