LeBow, Bennett S.
(Liggett, President & CEO, 1990-93) Bennett S. LeBow was President and Chief Executive Officer of Liggett Group, Inc. from 1990 through 1993. He was on the Board of Directors from 1988 to 1989. He was employed by Brook Group, Ltd. and served as Chairman, President, Chief Executive Officer, Treasurer and was on the Board of Directors from 1994 to 1995. (N.M., L & M Liability Notebook, Section 3, Personnel List). LeBow was an investor who purchased the Liggett Group Inc. from Grand Metropolitan PLC in 1986 (L. White, Merchants 1988). Grand Metropolitan PLC was the parent of the Liggett Group and Liggett & Myers Inc. from 1980 to 1986 (E. Whelan 1984, Merchants 1988). The Liggett Group was sold by Grand Metropolitan PLC to investors Robert E. Gillis and Bennett S. LeBow in 1986. GrandMet kept Alpo (L. White, Merchants 1988).Biographical Information:
Beginning in 1997, Liggett CEO Bennett S. LeBow signed a series of historic agreements by which he acknowledged that smoking cause cancer and is addictive, pledged to turn over internal documents, and thereby brought an end to the longstanding Gentleman’s Agreement between the major tobacco manufacturers. The decision raised questions about LeBow’s motivations that can never be wholly answered.
Bennett S. LeBow was born in Philadelphia in December of 1937, the son of a life insurance salesman and a teacher. He earned a B. S. in electrical engineering from Drexel University in his native Philadelphia, meeting his wife Geri in the process. After graduating in 1960, he began doctoral work at Princeton. At the same time, he was fulfilling his ROTC obligations by doing computer work for the U. S. Army, including the installation of data systems at the Pentagon.
Before long, LeBow decided to capitalize on the business potential of large-scale data systems he was installing and he began his own company, DSI Systems Inc. The company grew steadily and in 1969 it went public. But by then DSI’s rapid expansion had ruined its profitability and left the business on the brink of bankruptcy. LeBow was forced to make many tough decisions as he streamlined and reorganized the business he had founded and then resold it to a competitor. After the sale, LeBow moved to New Jersey and began working for the firm that had purchased DSI. But the experience of reorganizing his business had given LeBow a taste for such ventures and a belief that they could be very profitable. He proceeded to reinvent himself as an investor and entrepreneur.
Over the next decade and a half, Bennett LeBow became known for purchasing companies on the verge of bankruptcy, reorganizing them, and reselling them for a profit. By the mid-1980s, he had acquired a reputation as a leveraged-buyout expert with "an unusual taste for troubled and unpopular companies, which he can buy at fire-sale prices." After acquiring such firms, he had an entire team of crisis managers to bring in and engineer a turnaround. As one of his associates put it, "Ben is very interested in major changes in strategic direction but has less than zero interest in day-to-day things like sales operations and product development." These turnarounds often earned LeBow substantial profits, but because he rarely put up much cash when making these acquisitions, he was not a well-known figure on Wall Street during these years. To the extent that he was known he was perceived, in the words of a Business Week profile, as "a minor league bottom-fisher and a third-tier wheeler-dealer."
That began to change in 1985 when LeBow acquired a 51 percent interest in MAI Basic Four Inc., a troubled California-based computer company. Within a year, LeBow and his turnaround experts had restored the firm to profitability and established himself as a major player. LeBow followed up the next year by gaining control of Liggett, the smallest of the major tobacco manufacturers and the only one to traditionally focus on the generic market. He continued his spending spree, becoming affiliated with the Vector Group and purchasing such companies as Western Union, Brigham’s Ice Cream and Brooke Yachts International. His acquisitions representing an impressive variety of fields and had only one obvious thing in common: each was struggling when purchased by Bennett LeBow.
LeBow’s rapid rise to prominence caused many on Wall Street to ask questions about whether he was truly independent, or whether he was a pawn of Drexel Burnham Lambert, Inc., the firm that then dominated the junk bond market and that would later collapse after an SEC investigation that revealed the illegal activities of Drexel employee Michael Milken. LeBow, however, angrily denied such claims and maintained that Drexel did not "control me in any way, shape or form."
The 1986 purchase of Liggett came at a time when litigation was already recognized as a huge threat to the future of the tobacco industry. As a veteran at purchasing troubled firms, LeBow made his decision with his eyes wide open. According to colleague Richard S. Ressler, of LeBow, Weksel & Company Inc., LeBow concluded that lawsuits represented the only major downside to the purchase of Liggett so he pored through stacks of legal documents and reports before reaching a final decision. "Most investors would simply rely on legal counsel," noted Ressler. "He talked to them, but came to his own educated conclusion." That conclusion was that the market had overestimating the magnitude of such litigation.
It was thus surprising when LeBow was deposed in the Broin case on November 5, 1993, and gave a series of responses that suggested little interest in the underlying issues. Asked about the smoking habits of his wife and two daughters, LeBow indicated that he had never suggested to them that quitting would be a good idea. He further maintained that he had only the most casual awareness of the health risks associated with smoking and no interest in acquiring additional information. "I’m a businessman," he stated, and all he needed to know about cigarettes was that they were a legal product. If given the opportunity to discuss the health risks of smoking with the world’s leading medical authorities, he added, he would have no interest in doing so.
Over the next few years, however, LeBow once again reinvented himself. In 1997, on behalf of Liggett, he agreed to settle a lawsuit brought by five U. S. states and the Castano group of plaintiffs. After subsequent negotiations, he agreed to acknowledge the risks and addictiveness of cigarettes and to turn over internal company documents. The longstanding Gentleman’s Agreement between the major tobacco manufacturers had finally come to an end.
What had happened?
According to LeBow, his change of heart had been the result of Philip Morris’s 1995 offer to pay half of Liggett’s annual legal fees. As a businessman, he couldn’t help "smell a rat" at such an offer from a competitor. Until then, LeBow would later maintain, he had accepted the counsel of his attorneys and been "a good soldier." His testimony in the Broin case, he now claimed, was just an example of his following the party line. In light of the Philip Morris offer, however, LeBow decided to look into the matter for himself. When he did, he became disturbed by both the health toll taken by smoking and by the industry’s practice of targeting minors, with the result that he made the historic decision to change the company’s position.
Others, however, saw LeBow’s decision in another light. They pointed out that Liggett was in financial trouble and that the agreement provided his company with important advantages over its larger rivals, including a "Most Favored Nation Clause" that provided the right to substitute or incoporate any terms deemed more favorable that were included in future settlements with other tobacco companies and also guarantying preferential financial treatment with respect to other future settlements. They also noted that LeBow was in the midst of an unsuccessful effort to purchase R. J. Reynolds and suggested that signing these agreements improved his position for doing so.
The motives of Bennett S. LeBow cannot be deduced with any certainty. What we can be sure of is that his decision was a historic one. As Allan Brandt puts it, "Whether LeBow had achieved some moral epiphany … or was simply trying to save his second-tier tobacco business … his action forced the major tobacco producers to reevaluate their defense." In the ensuing years, the other manufacturers would make similar admissions to the one that Liggett made at the instigation of Bennett LeBow.
Since making the historic 1997 decision, LeBow has remained in charge of Liggett and has focused much of his attention on developing alternative brands such as the reduced-nicotine Quest cigarette. But throughout these efforts he has remained a controversial figure, with some claiming that profits, not the public health, are LeBow’s motivation.
As of 2008, Bennett LeBow remains the Chairman of the Board of the Vector Group, the parent company of Liggett. He has also been a large donor to his alma mater, giving a $10 million donation in 1999 that resulted in the school’s college of business and administration being renamed the Bennett S. LeBow College of Business.
Sources:
Allan M. Brandt, The Cigarette Century: The Rise, Fall and Deadly Persistence of the Product that Defined America (New York: Basic Books, 2007).
Joshua Davis, "Come to LeBow Country," Wired, February 2003.
"Drexel Receives $10 Million Gift from Alumnus Bennett S. LeBow," Drexelink, September 10, 1999.
Barnaby J. Feder, "Turnaround Artist: Bennett S. LeBow; Collecting Wall Street's Wallflowers," New York Times, September 25, 1988.
Michael Janofsky, "On Cigarettes, Health and Lawyers," New York Times, December 6, 1993.
Richard Kluger, Ashes to Ashes: America’s Hundred-Year Cigarette War and the Unabashed Triumph of Philip Morris (New York: Vintage Books, 1996).
For More Biographical Information:
Dun & Bradstreet Reference Book of Corporate Managements, various editions.
The New York Times Biographical Service. A compilation of current biographical information of general interest. Volume 19, Numbers 1- 12. Ann Arbor, MI: University Microfilms International, 1988.
Who’s Who in America, various editions.
Who’s Who in Finance and Industry, various editions.