Tobacco Company Takes High-Stakes Gamble Ligget Group Settles Lawsuit By States In Bid To Save Failing Cigarette Maker

In settling tobacco lawsuits brought by 22 states, cigarette baron Bennett LeBow looks like both a traitor to the close-knit tobacco fraternity and an improbable hero to the antitobacco movement.

Mostly, though, LeBow is a wily entrepreneur, making a high-stakes gamble to save his failing tobacco company, the tiny Liggett Group Inc.

“A traitor to the tobacco industry - I don’t know what that means,” said the 59-year-old LeBow, an investor and sometime corporate raider. “We have protected the shareholders and our interest. Liggett could not afford to lose any one of these trials.”

Some put it more strongly, describing it as an act of desperation.

The deal “is a final fling by a desperate man who has lowered what was a fine tobacco company to its knees,” said Martin Feldman, an analyst for Smith Barney. “LeBow’s business is in dire financial straits.”

While focusing on private label, or generic, cigarettes, Liggett has watched its market share become minuscule and profits have plunged into the red.

But there is method to LeBow’s cigarette madness. “The motivation of LeBow is, first, to get immunity for Liggett,” said Roy D. Burry, a securities analyst with Oppenheimer & Co. “But second, his strategy is to get acquired” by another tobacco company that might benefit from the settlement.

But in an interview, LeBow, who is chairman of Liggett’s holding company, Brooke Group Ltd. of Miami, said that the main reason for the settlement “was to give Liggett immunity,” adding that an acquisition “is not part of our present game plan.”

Nevertheless, LeBow acknowledged that a company acquiring Liggett would, like Liggett, win the right to limit its legal liability, protecting that firm’s nontobacco operations, and possibly its domestic tobacco operations as well.

The Philip Morris Companies, the world’s largest tobacco-maker, which could provide the biggest payday for plaintiffs’ lawyers and the states’ attorney generals, is exempt from liability protection in Thursday’s deal.

The risks are that no competitor will take the bait, and that Liggett cigarettes, which include brands like L&M, Chesterfield and Lark, might lose sales if they carry a warning label about the addictiveness of cigarettes - one term of the deal.