LeBow in danger of drowning

FROM his lair on the exclusive Fisher Island in the waters of Miami, Bennett LeBow did what he likes doing best when he announced ten days ago that his Liggett Group had settled with two groups pursuing lawsuits against the tobacco industry: he made big waves. Trouble is, he may be the one who gets drowned.

The maneouvre, which smashed four decades of unity in the industry in fighting liability lawsuits, transformed Mr LeBow, 58, into the nemesis of the rest of the cigarette industry and the hero of America's growing anti-smoking community. Behind it, however, was one clear aim: to clinch his campaign to take control of the giant RJR Nabisco and force it to spin off its cracker-and-cookie food division from its cigarette-making interests.

With the former TWA chief executive, Carl Icahn, at his side, Mr LeBow began his assault on RJR last autumn. With 5.8 per cent of the company's stock in his pocket, he recently won - though only just - a non-binding vote of shareholders in favour of an immediate Nabisco spin-off. Victory will be his if, at the annual general meeting of RJR on 17 April, he can force through his own alternative set of directors to implement the break- up.

While certainly audacious, such machinations are not out of character for the financier, who has long enjoyed a reputation for breaking the corporate china for his own gain. His taste for buying and selling assets, mostly when in wobbly shape, came to the fore in the 1980s, when his acquisitions included that of Liggett itself from Britain's Grand Met as well as the US division of the British precious metals concern, Johnson Matthey.

As a director of the Brooke Group since 1986 (and its president since 1990), Mr LeBow has faced accusations from fellow shareholders of plundering its coffers to finance various indulgances which have included a $21m (pounds 14m) yacht, a jet and lavish parties for friends. Of the public companies within Brooke two - MAI Systems and New Valley Corporation - were driven into bankruptcy. New Valley survived only after Mr LeBow was forced to sell off its most famous asset, the Western Union money-transfer business.

At first sight, his Liggett bombshell seemed as inspired as it was unexpected. He announced settlements in both a high-profile class-action suit being brought against the entire tobacco industry by a coalition of 60 law firms on behalf of a friend of someone who died from the effects of smoking, and with five US states that are suing for compensation for the public health costs incurred in the treatment of people with smoking-related diseases.

The smallest of the US tobacco concerns, Liggett stands to suffer only minimal financial pain from the agreement. It is likely to pay out only about $2 million a year over the next 25 years to gain immunity from the lawsuits. Mr LeBow's real trick was this, however: under the settlement, the plaintiffs will also offer the same terms to RJR if Mr LeBow succeeds in his quest to have it separated from Nabisco. It is only because of the looming spectre of these court battles that the current management of RJR Nabisco has been holding out against any immediate spin-off.

But it is the view of most analysts on Wall Street that the strategy has backfired on Mr LeBow in disastrous fashion. "He obviously thought it was a brilliant ploy, but it has turned out to be a flop," Allan Kaplan, a tobacco watcher at Merrill Lynch, contended last week. Mr Kaplan is confident that RJR will prevail at the AGM.

Mr LeBow has been blown off course by the extraordinary bruising inflicted over the past two weeks on tobacco stocks. In five trading days to last Wednesday, RJR Nabisco saw its share price slide by 15 per cent while Philip Morris fell 16 per cent.

Much else, of course, has happened in recent days to contribute to the rout. Last week, the Food and Drug Administration revealed it had garnered statements from three former Philip Morris scientists disputing the company's assertions that it has never played around with nicotine levels in its products. Philip Morris was forced to run full-page newspaper advertisements refuting the implication that it had "manipulated" nicotine levels, which implies seeking to turn smokers into addicts.

Also coming to light is a broadening effort by the US government to investigate cases where it suspects that the tobacco companies have consistently and deliberately misled the authorities and consumers about how much it understood about the addictive qualities of nicotine.

But it was Mr LeBow's action that started the share-price slide. Noting that many RJR Nabisco shareholders also have stock in Philip Morris, Roy Burry, of Oppenheimer and Co, remarked: "Has he made shareholders mad at him? Certainly, he has not made many new friends anywhere and that is a problem for him." Of the annual meeting, he adds: "He will lose."

And Mr LeBow may find he has opened the gates to a flood of new and hitherto undeclared public lawsuits. On one thing everyone seems agreed. If Mr LeBow is defeated on 17 April, he can forget his RJR dreaming. "That will be it for him. He will be out of there," says Mr Burry.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
The Doctor and Clara have their first real heart to heart since he regenerated in 'Deep Breath'
TV
Arts and Entertainment
James Hewitt has firmly denied being Harry’s father
arts + ents
Arts and Entertainment
Jamie Oliver
filmTV chef Jamie Oliver turned down role in The Hobbit
News
The official police photograph of Dustin Diamond taken after he was arrested in Wisconsin
peopleDownfall of the TV star charged with bar stabbing
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Sport
Ashley Barnes of Burnley scores their second goal
footballMan City vs Burnley match report
News
news
News
Sir James Dyson: 'Students must be inspired to take up the challenge of engineering'
i100
Arts and Entertainment
Man of action: Christian Bale stars in Exodus: Gods and Kings
film
Life and Style
Apple showed no sign of losing its talent for product launches with the new, slightly larger iPhone 6 making headlines
techSecurity breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

A timely reminder of the bloody anniversary we all forgot

A timely reminder of the bloody anniversary we all forgot

Who remembers that this week we enter the 150th anniversary year of the end of the American Civil War, asks Robert Fisk
Homeless Veterans appeal: Former soldiers pay their respects to a friend who also served

Homeless Veterans appeal

Former soldiers pay their respects to a friend who also served
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing

Scarred by the bell

The downfall of the TV star charged with bar stabbing
Why 2014 was a year of technological let-downs

Why 2014 was a year of technological let-downs

Security breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Cuba's golf revolution: But will the revolutionary nation take 'bourgeois' game to its heart?

Will revolutionary Cuba take 'bourgeois' golf to its heart?

Fidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
The Locked Room Mysteries: As a new collection of the genre’s best is published, its editor Otto Penzler explains the rules of engagement

The Locked Room Mysteries

As a new collection of the genre’s best is published, its editor explains the rules of engagement
Amy Adams on playing painter Margaret Keane in Tim Burton's Big Eyes

How I made myself Keane

Amy Adams hadn’t wanted to take the role of artist Margaret Keane, because she’d had enough of playing victims. But then she had a daughter, and saw the painter in a new light
Ed Richards: Parting view of Ofcom chief. . . we hate jokes on the disabled

Parting view of Ofcom chief... we hate jokes on the disabled

Bad language once got TV viewers irate, inciting calls to broadcasting switchboards. But now there is a worse offender, says retiring head of the media watchdog, Ed Richards
A look back at fashion in 2014: Wear in review

Wear in review

A look back at fashion in 2014
Ian Herbert: My 10 hopes for sport in 2015. Might just one of them happen?

Ian Herbert: My 10 hopes for sport in 2015

Might just one of them happen?
War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?