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OCR Page 1 of 44Tobacco-
Liggett
Jerold R. Mande
05/13/98 04:55:58 PM
Record Type: Record
To:
Bruce N. Reed/OPD/EOP
CC:
Subject: LeBow
I found the article that follows from today's WSJ interesting. It provides an explanation for the
steep rise in Brooke's stock price, which although down almost 50% from its recent peak, is still up
80% since our Sept announcement.
Commentary
A Sweet Deal
For a Tobacco Executive
By JEREMY BULOW
Which single person stands to benefit the most from passage of the Senate
Commerce Committee's recently approved tobacco legislation? Surprisingly,
the answer is not a trial lawyer, though it is a man who's spent plenty of time
in court--bankruptcy court, to be exact. Bennett LeBow, controlling
shareholder of the Brooke Group Ltd., personally stands to "earn" hundreds
of millions of dollars a year if the bill becomes law.
Brooke owns Liggett, which makes L&M, Lark and
Chesterfield cigarettes. As this newspaper reported
in 1993, Mr. LeBow has pulled tens of millions of
dollars out of the company and used it to finance a
lavish lifestyle, pushing Liggett to the brink of
bankruptcy. Under Mr. LeBow's leadership,
Liggett's market share has fallen to 1.3% from 6%.
But this time Mr. LeBow has come up with a new
way to get money: have Congress give it to him.
Under the Commerce Committee's bill, tobacco
companies are to pay higher taxes on the sale of
cigarettes, increasing to 65 cents a pack in 1999 and
$1.10 a pack beginning in 2003. But Liggett has
been made exempt from this tax, so long as it keeps
its market share below 3%. Liggett argues that it deserves the break for
turning over secret industry documents to the state attorneys general whose
lawsuits against tobacco companies spurred the current legislation.
How much is this exemption worth? Even with the tax increase, the
Treasury predicts cigarette sales of slightly over 20 billion packs a year. So
if Liggett kept production down to 600 million packs (it sold 322 million last
year), it would enjoy a $1.10 per pack, or $660 million, cost advantage over
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