Investor Becoming Major Player in Takeover Game : LeBow Seeks Targets That Others Shun

NEW YORK — On Wall Street, they say only a certain type of takeover investor will seek control of tobacco companies. After all, while tobacco firms generate huge profits, they have image problems, and they also face the risk that they may have to pay huge liability settlements.

One such investor is Laurence A. Tisch, chief executive of CBS Inc. and Loews Corp., which owns the tobacco maker Lorillard Inc. Another is Bennett S. LeBow.

“When Ben LeBow went after (tobacco concern) Liggett & Meyers, a lot of people had looked at the company and backed away,” says Thomas DiMayo, a New York investment banker who has worked with LeBow. “This man wasn’t afraid to go forward.”

On Monday, LeBow showed his determination again when his MAI Basic Four Inc., a Tustin-based computer company, offered $970 million to acquire the much larger Prime Computer, of Natick, Mass.

The two bids are part of a string of takeover maneuvers that have made a once-obscure 50-year-old deal maker an increasingly important player in the takeover game.

Since the late 1960s, LeBow has been attracted to a certain kind of deal. He picks weak and unpopular companies, invests very little of his own money, installs capable managers--and waits for profits to roll in.

His “bottom-fishing” career began small in 1967, when LeBow merged a computer firm he founded with another one, restructured them both and led them to financial health. The deals have recently become very big, as LeBow has relied on the fund-raising and advice of the investment bank of Drexel Burnham Lambert and its high-yield, high-risk “junk bonds.”

First Major Deal

In the process, the short, plump New Jersey resident has piled up a personal fortune that Forbes magazine estimated at $330 million. LeBow didn’t return calls on Tuesday seeking comment.

MAI Basic Four was his first foray into big time deal-making, and perhaps his biggest triumph. In 1985, the firm was losing money, and its owner, New York raider Asher B. Edelman, was selling off assets to try to recoup his investment.

LeBow and his partners invested $10 million of their own money and bought the firm for $101 million. Today, the firm is highly profitable, and the value of the 51% stake held by LeBow, his family and a partner is about $185 million. He has already received about $10 million in dividends.

Another success was Liggett. LeBow’s partnerships put $14 million of their own money into the tobacco firm. Those holdings are today worth about $200 million.

Other deals have been less successful. LeBow bought a chain of jewelry stores that has struggled, according to DiMayo.

And Western Union, the telecommunications firm that he helped avoid bankruptcy, remains deeply in the red. The Saddle River, N.J., firm took restructuring charges of $200 million in the quarter that ended Sept. 30, and so far this year has lost $877 million.

“With this one, he has a long way to go,” says Audrey Stevoff, analyst with the Duff & Phelps credit-rating firm in Chicago. But she said outside financing accounted for about 95% of LeBow’s stake in the firm.

It remains to be seen how LeBow will fare on another front, his effort to engineer Liggett’s acquisition of American Brands, a much-larger tobacco and consumer products firm. Last Sept. 15, LeBow proposed the deal, arguing that there would be major benefits in integrating their tobacco operations.

The Federal Trade Commission last month cleared LeBow to seek control of American Brands. But American Brands’ executives have so far insisted that they intend to remain independent.

DiMayo says he admires LeBow’s success, but wonders how much of LeBow’s inspirations are his own. Drexel has advised and helped to finance the recent deals, and has said it is confident it can raise $875 million for the Prime Computer takeover, he notes.

“We know he’s good. Just how good, we will soon see,” DiMayo said.