==============================================================================
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[X] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
RJR Nabisco Holdings Corp.
(Name of Registrant as Specified In Its Charter)
RJR Nabisco Holdings Corp.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[x] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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OVERVIEW OF LEBOW'S PAST BUSINESS DEALINGS
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OVERVIEW OF LEBOW'S PAST BUSINESS DEALINGS
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Table of Contents
SECTION I LeBOW'S HISTORY WITH BROOKE GROUP/LIGGETT
bullet Overview
bullet Self-Dealing and Shareholder Conflicts
bullet Financial Returns
bullet Operating Performance
SECTION II LeBOW'S INVOLVEMENT IN OTHER TRANSACTIONS
bullet MAI Basic Four
bullet Western Union/New Valley
bullet Prime Computer
bullet American Brands
bullet Liggett's Merger Proposal to RJR
SECTION III CONCLUSION
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LeBOW'S HISTORY WITH BROOKE GROUP/LIGGETT
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LeBOW'S HISTORY WITH BROOKE GROUP/LIGGETT
- ------------------------------------------------------------------------------
Overview
bullet LeBow claims to have delivered extraordinary financial
returns to Brooke Group shareholders
dash However, the returns are driven largely by the
value generated by Marvel Entertainment's acquisition
of Skybox, which occurred more than 1 1/2 years after
Brooke Group spun off Skybox.
dash LeBow has NOT generated value at Brooke Group through
exemplary operating performance
bullet In fact, since LeBow gained control, the operating performance
of Liggett, Brooke Group's tobacco business, has been
unequivocally weak
dash Liggett has lost market share in both the Full-price
and Savings segments of the market
dash Liggett's market share declines have been driven by lower
unit volumes and lower dollar sales
dash Furthermore, Liggett's reliance on a concentrated group
of Private Label accounts resulted in a weakened
strategic position
bullet These are the facts behind LeBow's operating history. Investors
must seriously consider whether any tobacco company would
survive under his stewardship
bullet The performance of Brooke Group shows:
dash That LeBow is a wheeler-dealer
dash That LeBow has drained the financial strength of
Brooke Group
LEBOW'S HISTORY WITH BROOKE GROUP/LIGGETT
- ------------------------------------------------------------------------------
Company Holding Structure
Bennett LeBow
56.5%
Brooke Group
(SMM)
-----------------------------------------------
Sales $463.4 Cash $ 17.0
EBITDA 8.3 Total Debt 407.3
Book Equity (326.4)
100% 41.6% (effective voting control)
Liffett Group, Inc. New Valley Corporation
($MM) ($MM)
- ----------------------------------- --------------------------------
Sales $455.0 Cash $ 0.0 Income $ 47.9 Cash $246.5
EBITDA 36.9 184.2(2) EBIT 17.3 80.6
Book Equity (149.8) Pref Stock 215.9(3)
Book Equity (9.0)
Notes: (1) All income statement statistics are for the LTM ended 9/30/95;
balance sheet statistics as of 9/30/95.
(2) Includes $1.9MM of cash overdraft.
(3) Includes redeemable and non-redeemable preferred shares.
LEBOW'S HISTORY WITH BROOKE GROUP/LIGGETT
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Self-Dealing and Shareholder Conflicts
LeBow's history at Brooke/Liggett has been marked by instances of
self-dealing and shareholder conflict.
bullet LeBow acquired Liggett in an LBO transaction in October 1986
through a subsidiary of B.S. LeBow Inc. ($138MM in cash)
bullet Brooke Partners (later restructured into the Brooke Group)
bought out B.S. LeBow
bullet In a restructuring, LeBow was able to merge highly illiquid
assets at Brooke Group into the cash flow-generating Liggett
dash To placate Liggett shareholders, LeBow gave them
"contingent value rights" ("CVR"). Those securities
granted holders the right to receive in cash from Brooke
Group the difference between $19.45/Brooke share and the
price at which the Brooke Shares were trading on a date
approximately three years from issuance.
dash LeBow ultimately satisfied most of Brooke's CVR obligation
(which amounted to $52 million cash at that time) by
taking advantage of a loophole in the CVR agreement that
allowed him to reduce Brooke's CVR obligation by
spinning off its Skybox unit to shareholders.
dash Although LeBow's appraiser had valued Skybox at
$14.375/share (permitting him virtually to extinguish
Brooke's CVR responsibilities), the market disagreed.
On the first trading day after the spin-off, Skybox
closed at a mere $4.25/share.
bullet In May 1993, a lawsuit was filed alleging that LeBow and five
officers and directors personally benefited from various
transactions. On March 17, 1994 an agreement was reached in
settlement of the lawsuit under which LeBow agreed to (i)
repay Brooke Group Ltd. $16MM in loans, (ii) waive his right
to receive $6.25MM of preferred dividends, (iii) put a 25% cap
on his salary increases over the next 4 years and (iv) tie his
compensation to the performance of the company's common stock.
LEBOW'S HISTORY WITH BROOKE GROUP/LIGGETT
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Operating Performance
Brook Group has a money losing record from continuing operations.
Net Income (Loss) from Continuing Operations
Graphic Bar Chart illustrating Net Income (Loss) from continuing
operations running from $500 to $150. 1990 is $422, 1991 is $88, 1992 is
$8, 1993 is $69, 1994 is $18, 1995 is $45.
- -----
Note: (1) Includes reversal of $433 million loss at New Valley.
LEBOW'S HISTORY WITH BROOKE GROUP/LIGGETT
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Calculation of Brooke Group Rate of Return
Although LeBow calculates a 29% annual return to Brooke shareholders
since 1991, the largest component of this return is the $16.00/share each
shareholder received when Marvel Entertainment bought Skybox on May 5,
1995, more than 1-1/2 years after Brooke had spun off Skybox.
Brooke's Return from 2/1/96 - 8/28/95(1)
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Brooke Stock Price(2) $7.4 $4.5
Brooke Dividend 1991(3)(4) 0.7 0.8
Brooke Dividend 1992(3)(4) 0.4 0.5
Brooke Dividend 1993(3)(4) 0.0 0.0
Brooke Dividend 1994(3)(4) 0.0 0.0
Brooke Dividend 1995(3)(4) 0.2
Skybox Stock Price(5) 16.0
MAI Stock Price(6) 1.6
MAI Dividends(7) 0.4
----
Total $7.4 $24.0
----
% Return 29%
====
Notes: (1) Date range selected reflects the range used by LeBow in
proxy materials filed for consent solicitation. 8/28/95 is the
day before New Valley received Hart=Scott=Rodino clearance.
(2) Based on Brooke closing price as of 2/1/91 and 8/28/95
respectively.
(3) Dividend of $0.15/share, $0.42/share, $0.70/share paid in 1995,
1992 and 1991 respectively. Assumes dividends reinvested at 5.5%.
(4) Assumes dividends paid at the end of the year.
(5) Based on Skybox price of $16.00. (On 10/6/93 one share of Skybox
common stock was distributed for each share of Brooke Group's
common stock outstanding. Skybox was sold to Marvel
Entertainment effective 5/5/95 for $16.00 per share.)
(6) On 2/13/95 one share of MAI common stock was distributed for
each of six shares of Brooke Group's common stock outstanding.
Based on MAI closing price of $9.50 per share on 8/28/95.
(7) On 7/27/95 MAI declared a 25% stock dividend.
LEBOW'S HISTORY WITH BROOKE GROUP/LIGGETT
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Calculation of Brooke Group Rate of Return
In the consent solicitation, LeBow only calculated returns for a
carefully selected 4.5 year timeframe. If returns from the time of
Liggett's IPO to the day before New Valley received Hart-Scott-Rodino
clearance are analyzed, Brooke's returns look much different.
Brooke's Return from 10/8/87 -- 8/28/95(1)
1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ----
Brooke Stock Price(2) $12.0 $ 4.5
Brooke Dividend 1987(3)(4) 0.0 0.0
Brooke Dividend 1988(3)(4) $0.1 0.2
Brooke Dividend 1989(3)(4) 1.1 1.4
Brooke Dividend 1990(3)(4) 0.6 0.7
Brooke Dividend 1991(3)(4) 0.7 0.8
Brooke Dividend 1992(3)(4) 0.4 0.5
Brooke Dividend 1993(3)(4) 0.0 0.0
Brooke Dividend 1994(3)(4) 0.0 0.0
Brooke Dividend 1995(3)(4) 0.2
Skybox Stock Price(5) 16.0
MAI Stock Price(6) 1.6
MAI Dividends(7) 0.4
-----
Total $12.0 $26.3
===== =====
% Return 10%
=====
Notes: (1) 10/8/87 is the date of the Liggett IPO and 8/28/95 is the day
before New Valley received Hart-Scott-Rodino clearance.
(2) Based on Brooke closing price as of 10/8/87 and 8/28/95
respectively.
(3) Assumes dividends paid at the end of the year.
(4) Dividend of $0.14/share, $1.06/share, $0.56/share, $0.70/share,
$0.42/share, $0.15/share in 1988, 1989, 1990, 1991, 1992 and 1995
respectively. Assumes dividend reinvested at 5.5%.
(5) Based on Skybox price of $16.00. (On 10/6/93 one share of Skybox
common stock was distributed for each share of Brooke Group's
common stock outstanding. Skybox was sold to Marvel
Entertainment effective 5/5/95 for $16.00 per share.
(6) On 2/13/95 one share of MAI common stock was distributed for
each of six shares of Brooke Group's common stock outstanding.
Based on MAI closing price as of 8/28/95.
(7) On 7/27/95 MAI declared a 25% stock dividend.
LEBOW'S HISTORY WITH BROOKE GROUP/LIGGETT
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Calculation of Brooke Group Rate of Return
If the return to Brooke Group shareholders is calculated by excluding
the $16.00 Skybox distribution, it is significantly lowered to around 1%.
This calculation assumes that Brooke Group shareholders sold their Skybox
shares immediately after the spin-off in October 1993 and also sold their
MAI shares immediately after distribution in February 1993.
Brooke's Return from 10/8/87 -- 8/28/95(1)
1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ----
Brooke Stock Price(2) $12.0 $ 4.5
Brooke Dividend 1987(3)(4) 0.0 0.0
Brooke Dividend 1988(3)(4) $0.1 0.2
Brooke Dividend 1989(3)(4) 1.1 1.4
Brooke Dividend 1990(3)(4) 0.6 0.7
Brooke Dividend 1991(3)(4) 0.7 0.8
Brooke Dividend 1992(3)(4) 0.4 0.5
Brooke Dividend 1993(3)(4) 0.0 0.0
Brooke Dividend 1994(3)(4) 0.0 0.0
Brooke Dividend 1995(3)(4) 0.2
Skybox Stock Price(5) 4.3 4.8
MAI Stock Price(6) 0.3 0.3
-----
Total $12.0 $13.3
===== =====
% Return 1%
=====
Notes: (1) 10/8/87 is the date of the Liggett IPO and 8/28/95 is the day
before New Valley received Hart-Scott-Rodino clearance.
(2) Based on Brooke closing price as of 10/8/87 and 8/28/95
respectively.
(3) Assumes dividends paid at the end of the year.
(4) Dividend of $0.14/share, $1.06/share, $0.56/share, $0.70/share,
$0.42/share, $0.15/share in 1988, 1989, 1990, 1991, 1992 and 1995
respectively. Assumes dividend reinvested at 5.5%.
(5) On 10/6/93 one share of Skybox common stock was distributed
for each share of Brooke Group's common stock outstanding.
Assumes that Skybox share immediately sold and proceeds
reinvested 5.5%.
(6) On 2/13/95 one share of MAI common stock was distributed for
each of six shares of Brooke Group's common stock outstanding.
Assumes that MAI share immediately sold and proceeds reinvested
at 5.5%. Based on MAI closing price of $1.50 as of 2/13/95.
LEBOW'S HISTORY WITH BROOKE GROUP/LIGGETT
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Liggett/Brooke Group -- October 1987 to Present
Brooke Group's share price rarely moves on the news of strong operating
performance. Rather, financial manipulation of assets or M&A activity have
caused many of the most significant price movements.
Liggett/Brooke Group
-------------------------------------------------------------------
Chart using dollars as longitude 0 to $14 and
dates as latitude beginning at 08/Oct/87 and ending at 11/Mar/96
Liggett first went public at $12 a share (10/08/87)
LeBow announced his intention to acquire American Brands (09/16/88)
New Valley Corp., a company controlled by Brooke, received clearance
under the Hart-Scott-Rodino Act to acquire up to 15% of RJR Nabisco common
stock (08/29/95).
Announcement of Icahn seeking clearance to acquire RJR (09/20/95).
Brooke Group planned to spin-off portion of its Skybox unit to reduce
liability to holders of contingency value rights (09/13/93).
Liggett reported decline in net income for the year and quarter ended
March 31, 1989 (05/01/89).
Restructuring took place under which Liggett (now Brooke Group)
assumed the liabilities of Brooke Partners and obtained interests in
Western Union Corp. and MAI (11/19/90).
Brooke Group reported loss for September quarter (11/15/91).
Brooke filed registration statement with the SEC for possible spin-off
of Skybox (07/21/93).
Brooke distributed a dividend of one share of Skybox for each common
share of Brooke outstanding (10/06/93).
October 87 stock market crash.
Brooke posted net loss of $149.6MM for the year ended December 31,
1991 (06/03/92).
Western Union money transfer business sold to FFMC. New Valley
Corporation, a subsidiary of Brooke Group, obtained approximately $893MM in
cash and $300MM assumption of pension plan (11/15/94).
Lawsuit filed against LeBow (05/27/93).
LEBOW'S HISTORY WITH BROOKE GROUP/LIGGETT
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Operating Performance
Since LeBow acquired control of Liggett in 1986, the Company's volumes
and sales ahve declined significantly.
Column graph illustrating Volume and Net Sales respectively.
Volume
(Volume Bn Units)
Volume chart longitude illustrates Volume in (Bn Units) 0-25, latitude
illustrates years 1986 through 1995. 1986 volume is 22.2, 1987 volume is
20.2, 1988 volume is 15.7, 1989 volume is 17.0, 1990 volume is 17.7, 1991
volume is 17.3, 1992 volume is 15.4, 1993 volume is 11.2, 1994 volume is
11.3, and 1995 volume is 10.5.
Net Sales
(Net Sales ($MM)
Net Sales bar chart longitude reflects Net Sales ($MM) ranging from
0-$500 million. Latitude reflects years 1986 through 1995. 1986 is 370,
1987 is 368, 1988 is 381, 1989 is 376, 1990 is 437, 1991 is 448, 1992 is
458, 1993 is 346, 1994 is 333 and 1995 is 318.
Source: RJR Tobacco estimates.
LEBOW'S HISTORY WITH BROOKE GROUP/LIGGETT
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Operating Performance
Bar chart illustrating Liggett's market share has deteriorated in line
with volume and sales declines under LeBow's stewardship.
Longitude is 0-5. Latitude is 1980, 1986 and 1995.
1980 is 2.3% Full-Price Segment Market Share, 1986 is 3.9% with 1.4%
being Full-Price Segment Market Share and 2.5% being Savings Segment Market
Share, and 1995 is 0.6% Full-Price Segment Market Share and 1.6% is Savings
Segment Market Share.
Source: RJR Tobacco estimates. Industry shipment data.
LEBOW'S HISTORY WITH BROOKE GROUP/LIGGETT
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Operating Performance
Pie chart illustrating Private Label 81% and 19% other.
62% of Liggett's Savings business is concentrated in eight Private
Label accounts, while Private Label in total accounts for 81% of Liggett's
Savings business.
Private Label
--------------------------------------------------
Major Accounts
(62% of Savings Business) Brand
-------------------------- ------------------
Super America Yours
Pie chart Winn Dixie Price Breaker
Private Label=81% Crown Petroleum Kings Port
Other=19% Ralph's Plain Wrapper
Plad Pantry Meridian
FFP Meridian
Liggett's Savings Business Race Trac Grand Prix
Associated Grocers Shurfine
Source: RJR Tobacco estimates.
LEBOW'S HISTORY WITH BROOKE GROUP/LIGGETT
______________________________________________________________________
Operating Performance
Liggett's distribution coverage continues to deteriorate significantly
over time in all classes of trade except cigarette outlets.
%CIV Dist.-Full Price %CIV Dist.-Savings
--------------------- ------------------
12/93 12/94 12/95 12/93 12/94 12/95
----- ----- ----- ----- ----- -----
Convenience/Gas 67 61 56 25 20 17
Supermarkets 97 95 94 49 42 35
Cigarette Outlets N.A. 98 98 N.A. 84 83
----- ----- ----- ----- ----- -----
Total U.S. 77 72 68 31 30 26
===== ===== ===== ===== ===== =====
Source: RJR Tobacco estimates
LEBOW'S HISTORY WITH BROOKE GROUP/LIGGETT
______________________________________________________________________
Operating Performance
Liggett's continues to experience problems with its business as
evidenced by the fact that it is the only U.S. tobacco company that
continues to trade load.
Column graph longitude is 0-300 illustrating Days Sales, latitude
reflects last day of week of each quarter in 1994 and 1995. Two
columns at each date reflect Liggett and the industry 3/31/94 Liggett
is at 143 and industry is at 86, 6/30/94 Liggett at 138 and Industry
is at 115, 4/30/94 Liggett is 160, Industry is at 100, 12/31/94
Liggett is at 163 and Industry is at 91, 3/31/95 Liggett is at 147,
Industry is at 98, 6/30/95 Liggett is 163, Industry is at 98, 9/30/96
is 247, Industry is at 95, 12/31 Liggett is at 190, Industry is at 85.
______________________________________________________________________
LEBOW's INVOLVEMENT IN OTHER TRANSACTIONS
______________________________________________________________________
LEBOW's INVOLVEMENT IN OTHER TRANSACTIONS
Overview
bullet LeBow does not have a successful record of delivering returns to
equity holders:
dash MAI Basic Four, a company controlled by LeBow since
1985, provided poor returns to shareholders until
landing in bankruptcy in 1993. The Company's
equity value has only recovered recently since
LeBow's resignation as Chairman and as a Director.
dash Western Union, a company LeBow gained control of in
1987, operated in bankruptcy from 1993 - 1995 under
LeBow's stewardship. Although LeBow eventually
made a financial gain on the investment as a
consequence of the sale of Western Union's money
transfer business to FFMC in November 1994, the
gain was a windfall in an industry that
experienced an unexpected revival in the mid-
1990's.
bullet LeBow has a history of involvement in hostile situations after the
target company rebuffed his attempt to sell it an unwanted
asset.
dash Through MAI, LeBow made a hostile bid for Prime
computer after Prime refused to buy MAI from LeBow.
LeBow made a Hart-Scott-Rodino filing indicating
his intention to purchase in excess of $15MM of
American Brands stock and in excess of 50% of the
company's voting securities after American Brands
expressed a lack of interest in an acquisition of
Liggett.
dash Prior to his investment in RJR Nabisco, LeBow made
a proposal for a merger of RJR and Liggett. His
shareholder activism at RJR only began after his
merger proposal was refused.
bullet Based on his past history of self-dealing, it is difficult to accept
LeBow as a champion of shareholder activism.
LEBOW's INVOLVEMENT IN OTHER TRANSACTIONS
Case Study: MAI Basic Four
Since acquiring control of MAI, LeBow has failed to deliver acceptable
returns to equity holders while having legal problems with the Company's
creditors
bullet In January 1985, LeBow acquired a majority stake in MAI Basic Four,
a division of Management Assistance Inc., in a leveraged buyout
from Asher Edelman for $105MM. He and his partners put up $5MM
in equity.
bullet By September 1988, LeBow had received more than $10MM in dividends.
bullet In September 1989, Brooke Partners LP, an entity controlled by
LeBow, made a $30MM cash infusion in MAI, receiving securities
that could be exchanged into 17.5 million common shares (54%
stake), and converted $25MM of its preferred stock to restricted
common stock.
bullet After its failure to acquire Prime Computer in 1988/1989, MAI
decided to phase out its manufacturing operations and become a
reseller.
bullet On April 12, 1993, MAI filed for Chapter 11 bankruptcy protection.
MAI emerged from bankruptcy protection in November 1993.
bullet Creditors demanded LeBow's resignation as CEO after MAI filed for
bankruptcy in 1993.
bullet LeBow resigned as CEO of MAI in April 1993, as Chairman in May 1995,
and as a Director in October 1995.
bullet In January 1995, Brooke Group announced its intention to spin off
MAI as a special dividend to Brooke shareholders. Brooke spun
off its equity interest in MAI in February 1995.
LEBOW'S INVOLVEMENT IN OTHER TRANSACTIONS
Case Study: MAI Basic Four
Performance chart longitude is $22-0, latitude is dates as reflected
in the boxed text. MAI posted earnings increase for March quarter [04-28-
87] at $16.5, October 87 stock market crash at $12.5, a MAI posted earnings
increase for June quarter [07-27-88] at $19, With a slowdown in sales, the
company announced that it was seeking a buyer [08-29-88] at $18, MAI posted
fall in September quarter net income [11-18-88] at $11, First went public
[06-24-86] at $15, MAI stock trading suspended from NYSE [04-14-93] at less
than $1, MAI posted earnings increase December quarter [01-26-87] at $14, MAI
reported loss for fiscal year 1989 [12-05-89] at $4, MAI filed for Chapter 11
bankruptcy protection [04-12-93] at less that $1, MAI posted earnings
increase for March quarter [04-26-88] at $15.4.
LEBOW'S INVOLVEMENT IN OTHER TRANSACTIONS
Case Study: Western Union/New Valley
Western Union spent nearly three years in bankruptcy under LeBow's
stewardship. Ultimately, the Company's most significant asset had to be
sold to FFMC - a sale made possible by an unexpected recovery in the
money transfer business.
bullet On December 30, 1987, LeBow acquired a controlling interest in
Western Union Corporation for $25MM. A condition was that his
Class B common shares could not be converted into common shares
until the company earned more than its preferred stock dividends
for one full fiscal year.
bullet By 1990, Western Union was having liquidity problems and
negotiations began with the high yield debt holders. In
November 1991 major bondholders filed a petition for involuntary
bankruptcy.
bullet In December 1990, Western Union's business services unit was sold
to AT&T for $180MM in cash. With the proceeds, some of the
outstanding notes were bought back by the company for fifty
cents on the dollar.
bullet Nevertheless, liquidity problems persisted and from March 1993 to
January 1995, Western Union (renamed New Valley) operated under
Chapter 11 protection.
bullet New Valley's biggest asset, the Western Union money transfer
business, was sold to First Financial Management Corporation as
part of its Plan of Reorganization on January 13, 1995. The
purchase price was $893MM in cash, plus the assumption by First
Financial of Western Union's pension benefits liabilities. New
Valley ended up with more than $300MM in cash upon emerging from
Chapter 11 protection.
LEBOW's INVOLVEMENT IN OTHER TRANSACTIONS
Western Union/New Valley - December 1,1987 to Present
Shareholders of Western Union/New Valley have had a bumpy ride with
LeBow.
Performance chart S&P upgraded Western Union debt [12-31-87] at $2.7,
Stockholders' approval of merger with LeBow entity [12-14-87] at $2.4,
Brooke Partners secured financing in planned tender offer for Western Union
[02-23-89] at $4.75, Brooke Partners is launched $30-a-share tender offer
for Western Union's Class A Preferred stock [03-02-89] at $2.25, American
Express introduced money transfer program to compete with Western Union
[03-08-89] at $2.4, Interest rate on bonds reset upwards to 19.25% from
16.50% [06-16-89] at $1.6, Western Union announced that restructuring has
been approved by debtholders [12-30-87] at $2, Western Union reported net
loss for June quarter [08-03-89], Western Union announced that it was
considering alternatives to restructure the company's 19.25% notes because
of changes in market conditions [10-13-89] at $.9, Western Union posted
September quarter losses [11-14-89] at $.6, Western Union sold business
services unit to AT&T for $180MM in cash [12-31-90] at $.45, Bondholders
filed a petition for involuntary bankruptcy [11-15-91] at $.25, Out of
Chapter 11 bankruptcy protection [01-18-95] at $1.26.
Note: (1) Trading of New Valley stock suspended on NYSE 4/14/93. Trading
resumed on OTC 4/5/94.
LEBOW's INVOLVEMENT IN OTHER TRANSACTIONS
Case Study: MAI's Bid for Prime Computer
LeBow's MAI launched a hostile bid for Prime Computer in 1988 after
an unsuccessful effort to sell MAI to Prime in 1987.
bullet In 1987, LeBow tried to sell his interest in MAI to Prime Computer
without success.
bullet In November 1988, MAI launched a hostile tender offer bid
for Prime Computer.
bullet Despite suggestions in the press to the contrary, LeBow denied the
notion that he had made the hostile bid to force Prime to make a
counterbid for MAI.
bullet Prime rejected MAI's offer and a lengthy takeover battle ensued.
bullet MAI allowed its bid to expire in August 1989.
LEBOW's INVOLVEMENT IN OTHER TRANSACTIONS
Case Study: American Brands
LeBow discussed a possible acquisition of Liggett by American Brands. When
the talks were unsuccessful, he made a Hart-Scott-Rodino filing.
bullet In July 1988, LeBow approached American Brands about a possible
acquisition of its tobacco operations by the Liggett Group. He
also expressed a willingness to explore the possible acquisition
of Liggett by American Brands.
bullet In September 1988, through Brooke Partners, LeBow made a
Hart-Scott-Rodino filing indicating his intention to purchase
in excess of $15MM of American Brands stock and in excess of 50%
of the company's voting securities.
bullet There have been no subsequent filings to indicate that any
American Brands securities have been acquired by LeBow.
LEBOW'S INVOLVEMENT IN OTHER TRANSACTIONS
Summary of Liggett's May 12 Merger Proposal
($MM)
Prior to becoming a puported activist for RJR Nabisco shareholders,
LeBow made a proposal to RJR which would have resulted in significant
gain to him without commensurate benefit to all shareholders.
LeBow Contributes LeBow Receives
- -------------------------------------------------- -------------------------------------------------
Liggett Group Inc.
(Fiscal Year Ended December 31, 1994) I. 20% of combined RJR Tobacco/Liggett
Value Estimates
Income Statement: Balance Sheet 20% RJR Tobaccco(3) $759
20% Liggett 0-18
--------
Sales $466 Cash $ 0 $759-777
EBITDA 42 Total Debt 190
Net Income 16(1) Shareholder's
Equity (154)
Cash Net Income 20 II. Preferred Stock 350
- --------------------------------------------------- -------------------------------------------------
Value Estimate: $0-90(2) Value Estimate: $1,109 - 1,127
Net Benefit to LeBow $1,019-1,127
<FN>
- ----------
Notes: (1) Net income before extraordinary item.
(2) Calculated as the range of a 4.0x multiple of last twelve
months EBITDA (less net debt) and a 4.5x multiple of 1994 cash
net income. Includes no assumption regarding earnings
contribution of Russian investments other than that already
included in public financials.
(3) RJR's tobacco business valued by deducting Nabisco equity value
attributable to RJR (80.5%) from fully diluted RJR equity value
on May 12, 1995.
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CONCLUSION
______________________________________________________________________
CONCLUSION
Considerations Regarding a Future with LeBow
bullet LeBow's business past indicates that he has not been a successful
operating manager of companies
bullet LeBow's past also highlights his potential for significant self-
dealing at the expense of shareholders
bullet Managing RJR Nabisco's tobacco business like Liggett's low end
business would lead to declines in operating performance and
reduce shareholder value
bullet Shareholders know what RJR Nabisco plans to do: increase cash
returns to shareholders through a dividend increase and share
repurchase program while still maintaining the quality and
market presence of its brands. What in LeBow's past makes his
behavior as a manager predictable or his statements reliable?
LEBOW'S HISTORY WITH BROOKE GROUP/LIGGETT
LeBow's Management of Liggett
LeBow has displayed through his management of Liggett, his core
business, that he is not a builder of companies.
bullet Liggett is a weak competitor with a vulnerable business strategy
dash Dependence on a few private label customers
dash Very low margins of 13% (vs. RJR Nabisco margins of
32%)
dash Declining volume, market share and distribution
capabilities
dash Lack of presence in the high growth international
tobacco market
dash No sales force presence; losing distribution
dash Antiquated plant and equipment; no reinvestment
bullet Liggett lacks a focused and committed senior management; the CEO
has been replaced numerous times; there is no apparent management
development program
bullet Liggett was fined for disobeying regulations regarding the use of
imported tobacco leaf