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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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WINSTON-SALEM JOURNAL Thursday, April 4, 1996
Brooke Group says it expects
poor financial results for '95
By David Weidner
Journal Business Reporter
Brooke Group Ltd., the company controlled by Bennett S. LeBow, said
it will post dismal financial results this year, an announcement that is
likely to further dampen LeBow's efforts to take over RJR Nabisco Holdings
Corp.
In a filing with the Securities and Exchange Commission, Brooke
reported that it expects to lose $32 million in the fiscal 1995 when the
company files its year-end results. The company had a net income of $109
million in 1994 after it sold two of its most profitable businesses.
Analysts said that the results will only hurt LeBow's chances of
taking control of RJR Nabisco in a shareholder election April 17.
James Kevany, the president and chief executive of the Sussex Capital
Investments in New York, said that as LeBow's company continues to post
losses, many undecided investors will side with current management.
"This is no surprise," said Kevany, who has tracked Brooke Group's
performance in the past year.
"Any intelligent investor can sum up the situation based on the track
record of these executives. We've come to a point where it's a credibility
factor."
Brooke Group, based in Miami, also took a charge of $8 million and
reported an operating loss of $15 million, according to the filing.
The company reported an operating loss of $18 million in 1994.
The company spun off the international division of Western Union and
SkyBox International Inc., two years ago. The spinoffs helped raise money
that pulled other Brooke Group companies out of bankruptcy protection and
replenished an employee retirement fund.
Tuesday's filing, called an NT 10K, is a notice to the SEC that
Brooke Group will file its year-end financial results late. Brooke Group is
the holding company for Liggett Group Inc., which produces such cigarettes an
Chesterfield, Lark and Eve. Liggett is based in Durham.
Brooke Group did not return phone calls seeking comment about the
filing.
Last week a Brooke Group spokesman said that Brooke was outperforming
RJR Nabisco in terms of its returns to shareholders.
LeBow, along with investor Carl C. Icahn, has purchased 6.6 percent
of the stock of RJR Nabisco. The investors hope to gain control of the
company by electing its candidates to the board of directors.
Icahn and LeBow have criticized RJR Nabisco for its declining
cigarette market share and hesitance to spin off Nabisco, a move that LeBow
and Icahn say would drive up the price of RJR Nabisco stock by 60 percent.
Kevany said that many large investors are disappointed by LeBow's
candidates and by RJR Nabisco's current management.
Managers of some large investment funds have explored voting for a
combination of the nominees. But Kevany warned against such a move.
"They need to get this behind them," he said. "The meeting is on the
17th. The cards are falling in management's favor."
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WINSTON-SALEM JOURNAL - MONDAY, MARCH 25, 1996 pg. B3
LeBow has filtered money out of Liggett - and it shows
UP IN SMOKE?
By David Weidner
Journal Business Reporter
Durham -- At first glance, the City of Medicine still looks a lot like a
tobacco town. Its downtown is lined with tobacco factories, warehouses and
smokestacks bearing the names of cigarettes.
But a closer look at the city's architecture makes it apparent
that tobacco is more history than economy here. Factories have become
restaurants, warehouses have been turned into apartments, and the smokestacks
have become homes for pigeons.
Robert Mack is a 25-year employee at the city's last tobacco
company, Liggett Group Inc. Mack, the president of the local Bakery
Confectionary and Tobacco Workers Union, said that many employees wonder if
the company will be around in 1997. On Thursday, the Company announced
that it has scheduled a weeklong layoff for the week of April 7.
"I believe we have a presence, but it's not as strong as it was
in the past," Mack said. "I think the community wants to keep us open and in
business."
An industry that used to employ thousands now employs only 650
people at Liggett. Those jobs, too, appear to be in jeopardy as Liggett owner
Bennett S. LeBow attempts to gain control of RJR Nabisco Holdings Corp.
Liggett's warehouses are filling up with excess inventory of
brands such as Chesterfield, Lark, L&M and Eve, and many production workers
fret that their hours will be cut further and that their jobs could be next.
It wasn't always this way.
LeBow bought Liggett from GrandMet USA in 1986 for $137 million
and immediately focused the company on selling generic less expensive brands.
Though generic brands were less than 10 percent of the market, Liggett held
nearly 13 percent of that total, according to the Maxwell Consumer Report.
Value brands are cigarettes with a higher waste content than
premium brands. Premium-brand cigarettes use only the leafy part of the
tobacco plant. Value brands add chopped stems and pulp to the mix.
Jack C. Maxwell, a tobacco analyst with Wheat First Butcher
Singer in Richmond, said that at first, LeBow's focus on value brands helped
keep Liggett profitable at a time of intense competition in the industry.
"That was his business, and when value brands were strong,
business was strong for Liggett," he said.
Liggett prospered in the first five years that it was owned by
Lebow. But instead of returning the company's profits to its marketing
department or updating Liggett's plants, LeBow used the profits to finance its
other interests; trading-card companies and Western Union, the wire service.
By 1993, that strategy began to hurt Liggett, Philip Morris
Cos. and R.J. Reynolds Tobacco Co. began a price war that severely eroded the
value-brand market.
Liggett, after commanding a 3.4 percent share of the domestic
cigarette market in 1990, had only a 2.4 percent share at the end of 1993,
according to Maxwell.
The company had about 1,700 employees in 1990. It began
cutting jobs and other costs in the spring of 1993. Employees, some of whom
had worked 30 years for the company were let go or had their schedules cut by
20 percent. In May of that year, Liggett sent people home for two weeks
without pay.
Brad Brooks, an analyst with Dabney Resnick Investment
Management in Beverly Hills, Calif., said that Liggett's problems started when
Lebow combined the company with Western Union Telegraph Co. in 1988.
"Liggett financed Western Union," he said. "The way Liggett
shareholders saw it, well, LeBow wasn't exactly loved."
Liggett shareholders sued LeBow. They said that he was
spending too much on his personal life; a $1.5 million salary, planes,
expensive parties and a boat modeled after Queen Victoria's private yacht.
The suit was eventually settled out of court, Brooks said, but it left a bade
taste in Liggett shareholders' mouths.
"We don't run the stuff that they have at Philip Morris in
Concord." Mack said.
Now LeBow has turned his attention to R.J. Reynolds Tobacco Co.
He began his quest to control Reynolds, the No. 2 U.S. tobacco company, in the
summer.
LeBow met with RJR Nabisco executives at their corporate
headquarters in New York. From there, accounts differ about what was offered.
LeBow said he asked for an immediate and complete spinoff of Nabisco.
RJR Nabisco executives including James W. Johnston, a vice
chairman, say that LeBow offered to sell Liggett to Reynolds.
"He came to us wanting to merge Liggett into RJR at a higher,
inflated value," Johnston said. "The question is, isn't there some price you
would take it? And the answer is yes, if they gave it to us, we'd take it."
Maxwell said that a combination of the companies would have
every advantage to Liggett and little advantage to Reynolds. "He has nothing
to offer Reynolds; they don't need him." Maxwell said.
Meanwhile, Liggett's plants in Durham are slow and poorly
maintained. David Durkee, a vice president with the Bakery, Confectionary and
Tobacco Workers Union in Kensington, Md., said that the plant in Durham has
failed to undergo any extensive modernization since LeBow took over 10 years
ago.
"It's has become an antiquated plant," Durkee said "They've
put nothing back into it.
Mack said that the company blamed job cuts in 1993 on
production lines that eliminated manpower. Still, many workers use old
machinery from the pre-LeBow era.
Union officials also acknowledge that Liggett under LeBow has
been a difficult place to win benefits. Aside from mass job cuts, Liggett
production workers earn between $11 and $20 an hour, far below the industry
average of $23.50 an hour, according to the U.S. Bureau of Labor Statistics.
Bob Curtis, the BCT representative who negotiated the last
union contract at Liggett, said that Liggett management has little to work
with at the negotiating table.
"When you deal with Liggett, its like dealing with any other
tobacco company except with one difference: They don't have any money," Curtis
said.
Mack and the union's 375 members are in the middle of a
three-year contract. Curtis said that the contract is no guarantee the
business will not shut down, leaving everyone out of work."
The company's accounting department is finding it hard to fend
off creditors. Mack said.
"We're still alive," he said "There's a whole lot of
uncertainties and concerns. We just don't know, and from what I can tell,
management feels the same way.
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Barron's April 8, 1996
[Picture of Bennett LeBow] [Picture of RJR Nabisco [Picture of Brooke Group
Holdings Corp. Advertisement Ltd. Advertisement dated
dated March 27, 1996] April 3, 1996]
What Burns Holes In LeBow's Pockets?
The man who would be King at RJR
By Jonathan R. Laing o The voice crackles with an excitement that's only
accentuated by the scratchy connection from a car phone. "We've got a great
message that institutional investors are really starting to turn on to,"
gushes Bennett S. LeBow, the one-time tanktown takeover artist who's now in
the biggest battle of his life and clearly relishing it. "I'm an experienced
fighter, and come April 17, I think a lot of people are going to get the
surprise of their life."
That's the day, of course, he hopes to oust the board of giant RJR
Nabisco Holdings at the company's annual meeting and install himself and his
hand-picked slate of nine others as directors. LeBow is merely the latest
barbarian at the gate of this once venerable tobacco and food concern. But
his platform of breaking up the company to unlock value has seductive appeal
to shareholders who've been saddled with years of disappointing earnings and
slack stock performance following Kohlberg Kravis Roberts's $29 billion
leveraged buyout of the firm in 1989.
LeBow's plan calls for RJR to immediately spin off to current
shareholders the 81% stake it still holds in the Nabisco food operation.
Then, LeBow figures, the food company's stock, freed of the immense litigation
risks facing Reynolds and other tobacco companies, would bolt upward.
But it's difficult to imagine a more unlikely champion of shareholder
value. Over the years, LeBow himself has proven a less-than-adept corporate
manager. Two of his major corporate acquisitions of the mid-'Eighties, the
computer concern MAI Systems and Western Union, ended up filing for Chapter 11
bankruptcy protection in 1993 while still under his tutelage. Heavy losses
were inflicted on shareholders. LeBow denies any responsibility for this sad
pass. He claims both MAI and Western Union were troubled, high-risk companies
that he was, unfortunately, unable to save.
His current publicly traded company, Brooke Group Ltd., is hardly in
the pink of health. This despite the fact that Brooke's stock rocketed from
$4 a share to 14 in a matter of weeks last fall, after LeBow first announced
his campaign to bust up RJR. The stock currently trades at around 9.
Brooke's major operating unit, Liggett, is in free fall as a result of its
shrinking share of the U.S. cigarette business. Liggett now holds about 2% of
the market, and it is plagued by declining volume, poor distribution, a loss
of pricing power for its important discount brands and antiquated plant and
equipment.
Meanwhile, the parent company Brooke is asphyxiating on some $400
million in consolidated debt that recently had to be restructured. As of last
Sept. 30, Brooke boasted a negative net worth of more than $325 million. And
that number is likely to grow. In a notification of late filing last week,
Brooke reported that it expects to post a net loss of $32 million for 1995.
With performance like this, Brooke has another shot at being Fortune
magazine's "Least Admired" company in the U.S., an accolade it last won in
1994.
The deplorable operating results of LeBow-controlled companies never
stopped him from enriching himself at the expense of fellow investors. Over
the years he has feasted royally even as his companies hemorrhaged red ink.
His combined annual compensation at Brooke and its various units exceeds $2
million. He also has never been averse to making sweetheart deals between his
public companies and the private entities he controls. Brooke, for example,
spent some $10 million in 1992 to buy LeBow's management company, which had
been earning fancy fees for managing Brooke and its various subsidiaries.
LeBow also benefitted from having Brooke buy back shares from him in a deal
that was not offered to other shareholders. In a sense, LeBow greenmailed his
own company.
And, when it comes to maneuvering in bankruptcy court, few financiers
shake and bake with the agility of LeBow. Though a minority shareholder of
Western Union, or New Valley, as the company was renamed in 1991, LeBow wound
up maintaining control of the company when it shocked the investment world by
emerging from bankruptcy in 1995 with a cash kitty of $300 million after
paying off all of its creditors. An unexpected windfall from the sale of New
Valley's funds-transfer business had made a minor bonanza out of what was
expected to be a lugubrious court-ordered liquidation in which creditors and
shareholders would be hosed.
Other equity holders cried foul and sued, charging that LeBow and
Brooke had manipulated the bankruptcy process to their own benefit. But to no
avail. Today, LeBow uses New Valley as his personal investment arm despite
the fact that Brooke owns but 42% of the company's common.
Lavish Lifestyle
Lastly, LeBow has few qualms about using his debt-laden companies as
personal banks for streams of loans to finance his lavish lifestyle of
multiple homes and occasional hijinks. He outdid himself in 1989 when he
chartered a plane to fly 150 friends to a $3 million party in London to
christen his private yacht, which was modeled on one built for Queen Victoria.
LeBow's guests reportedly were put up at Claridge's Hotel and were met at the
harbor by a uniformed marching band.
At one point, LeBow's borrowing got so out of control that Brooke
shareholders successfully sued to force LeBow to pay back some $16 million in
outstanding loans, waive his right to $6.25 million in preferred dividends and
limit increases on his annual salary for the next four years.
LeBow remains unrepentant. As he told Barron's last week, "The point
to remember is that I would have paid every dime of the loans with contracted
interest anyway. The lawsuit just accelerated the payback. Look, those were
the swinging 'Eighties when everybody was living high. And by the way, you
should know that RJR Chairman Mike Harper took some $40 million from the
company last year, if you add up his salary, incentive compensation, bonuses,
and other benefits. We'll fax you the numbers."
Of course, LeBow was stretching the truth a tad in his spirited
rejoinder. The loans he was forced to repay all occurred in the Calvinist
'Nineties rather than the spendthrift 'Eighties. And the proffered fax on
Harper's compensation got to the magic $40 million level only by lumping
together two and a half years of Harper's salary, bonuses, option awards,
insurance benefits and perks. Clearly, all is fair in love and takeover
battles.
LeBow's career of self-dealing has clearly paid off. His nearly 60%
interest in Brooke alone has a current market value of more than $90 million.
Characteristically, he's mounting his epic proxy battle for control
of multibillion-dollar RJR on the cheap. His partner in the effort, long-time
raider, Carl Icahn, put up some $350 million of the $500 million the pair used
to accumulate its 18-million-share, or 6.6% position in RJR's common. LeBow's
contribution consists of $80 million supplied by New Valley -- seemingly his
sole remaining source of corporate liquidity -- leveraged with some $70
million in margin debt. Both Icahn and LeBow are slightly underwater on their
positions, based on RJR's recent trading level of around 31.
Yet the proxy fight being mounted by LeBow and Brooke can't be
dismissed out of hand. Certainly RJR is taking the effort seriously, firing
volley after volley of full-page ads in the New York Times and The Wall Street
Journal trumpeting various claims depredations of "LeBow-LeBogus" or "LeBow -
LeBankrupt" and carpet-bombing its shareholders with all manner of anti-LeBow
propaganda.
In February, the LeBow team shocked RJR by winning a consent
solicitation of the company's shareholders in which more than half of RJR's
outstanding shares voted in favor of nonbinding resolution that the food unit
should be immediately spun off. "Its the first time any Fortune 1000 company
has ever lost such a solicitation," LeBow crowed to Barron's.
Perhaps even more worrisome from RJR's standpoint, Brooke also won
a binding bylaw change that would allow any RJR shareholder to call a
special shareholder meeting with the backing of just 25% of RJR's
outstanding shares. This means that LeBow and Brooke can continue to push
for changes in the composition of the RJR board and the like, even if they
lose the proxy fight at the April 17 annual meeting. And they would no
longer need a majority of the shares outstanding to pass new resolutions,
as is needed in consent solicitations. Just a majority of the shares
present and voting would suffice.
Moreover, last month LeBow thought he'd pulled off a considerable
coup that would virtually insure a Brooke victory in the proxy battle.
Breaking with previously sacrosanct tobacco-industry practice, LeBow's Liggett
settled a clutch of major outstanding tobacco liability suits. The bucks
involved were small, some 12% a year of Liggett's anemic pre-tax income, but
the symbolism of the act was huge.
LeBow, of course, extracted a key concession from the plaintiffs'
lawyers. They agreed that if LeBow were to win the proxy fight, they would
allow the bust-up of RJR and the spinoff of the food unit to proceed without
tying the deal up in court. Thus RJR could no longer claim that any spinoff
would automatically trigger suits from plaintiffs' lawyers.
LeBow badly miscalculated, however. News of the Liggett settlement
sent RJR and the other tobacco stocks careering lower. Industry giant Philip
Morris slipped more than 10% in a matter of days, helping vaporize more than
$10 billion in the tobacco industry's stock value. Investors panicked at the
thought that Liggett's deal would, in the words of leading cigarette analyst
Gary Black of Sanford Bernstein, "unleash a new flood of litigation." And who
knew what damaging industry memos would surface now that Liggett was
consorting with the enemy?
As a result, LeBow has likely cost Brooke victory in the proxy
fight by alienating a number of large institutional shareholders in RJR who
has backed Brooke's February consent solicitation. At least that's what
Black and other analysts are hearing in their independent soundings of
institutions. The doors at Fidelity and other major institutions are no
longer open to LeBow, though he denies this in the case.
It's doubtful that LeBow would win the proxy fight anyway. For it's
one thing to use LeBow to send a message to RJR management and quite another
to actually hand over control of a major company to someone with as tainted a
reputation as his. RJR's huge cash flow might prove too tempting.
RJR officials argue persuasively that LeBow has a hidden agenda in
trying to take over RJR. They say his real intent is to unload the ailing
Liggett on RJR at a fancy price.
There's plenty of evidence to back this contention. LeBow concedes
that he began his saber-rattling at RJR only late last summer after the
company spurned his proposal to merge Liggett into RJR's tobacco company for a
price nearly four times what RJR considered Liggett's fair market value. So
much for boosting RJR's shareholder value. Likewise, the briefing books that
various Brooke nominees for RJR directorships received last December included
financial tables assuming the two tobacco operations would be merged.
If Brooke fails in its efforts to dump Liggett on RJR, which now
seems likely, its business could continue to deteriorate and it, too, could
someday join that long list of companies that LeBow has driven into bankruptcy
court. That's what several sophisticated short-sellers are betting.
But any setback for LeBow would only be temporary, one suspects. For
in bankruptcy court he would have his fellow Brooke investors and creditors
just where he wants them.