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TOBACCO: Profits in Hand, Wealthy Family Cuts Tobacco Tie


by STEPHANIE SAULThe New York Times
June 11th, 2008

Forty years ago, the New York business magnates Laurence A. Tisch and Preston Robert Tisch capitalized on growing public health concerns over smoking by buying a cigarette company at a bargain price.

It proved a good investment — even if the Tisch name has sometimes been linked to smoking’s health hazards, as when an airplane once trailed a banner over Long Island beaches reading “Larry Tisch sells cancer sticks.”

The tobacco company’s flagship Newport brand flourished, becoming the leading menthol cigarette and No. 2 among all brands, in large part because Newports are enormously popular among black smokers.

Now, the next generation of Tisches has removed tobacco from the portfolio of the conglomerate they lead, the Loews Corporation, spinning off its tobacco unit, Lorillard, as a stand-alone business, with the Newport brand representing more than 90 percent of the new company’s revenue. The new stock began trading Tuesday, and analysts have said the new company might be a takeover target.

Separating tobacco from Loews is a timely step for the socially and philanthropically prominent Tisch family, as Newport menthol cigarettes have lately been criticized by black antismoking advocates and others. While antismoking activists have long had difficulty reconciling the relationship between cigarettes and the civic-minded Tisches, the anti-Newport flare-up has added heat to the controversy.

Members of the Tisch family declined to comment for this article. But when the spinoff was announced late last year, James S. Tisch, the Loews chief executive, said it was not because “it is politically correct to get out of the business.”

From an initial investment of about $450 million to buy Lorillard in 1968, Loews has reaped big rewards. “Loews’s overall profit, excluding dividends, approximates $10 billion,” said Erik A. Bloomquist, a financial analyst for JPMorgan Securities.

Mr. Tisch has said that the cigarette business is simply no longer a focus of the Loews conglomerate, which has holdings in insurance, natural gas pipelines and offshore drilling, as well as its original focus, hotels.

Even before Tuesday’s spinoff Loews has been gradually reducing its stake in Lorillard. Since 2002, shares in Lorillard were available to the public through a tracking stock called Carolina Group.

And there is ample evidence of the Tisch family’s discomfort with tobacco. Joseph A. Califano Jr., the former federal health secretary under President Jimmy Carter, said he had known the Tisch family for years and that decades ago, “Larry Tisch was talking about finding a way to get rid of Lorillard.”

“I don’t think he was ever comfortable in that business,” Mr. Califano said. “I think the whole family was uncomfortable.”

In the spinoff, James and the other two Tisch family members on the Loews board, whose combined holdings amounted to about 6 percent of the stock in Loews, retained no stakes in the tobacco company or plan to hold executive or board positions in it. Other members of the family, who before the spinoff controlled about 17 percent of shares in Loews, did not disclose whether they would retain those shares or swap them for Lorillard stock.

The new shares rose more than 6 percent Tuesday, closing at $76.63.

Some analysts said it was unlikely that other family members had tendered their shares of Loews in exchange for Lorillard stock. “The clear message that they’re sending is, ‘We’re moving out of tobacco and we’re moving into energy,’ ” said Benjamin J. Bornstein, a partner at Omega Advisors, a $5.3 billion hedge fund that holds Loews stock.

Some public health experts say Newport, which rank near the top in smoking-machine tests of nicotine yield, may be among the unhealthiest varieties of cigarettes. That disturbs African-American antismoking advocates, particularly because documents disclosed in tobacco lawsuits reveal that Lorillard pursued a marketing strategy aimed at black smokers. By the company’s own tally, just over half of Newport customers are black.

There has been a backlash in recent weeks over news that the tobacco legislation pending in Congress contains a special protection for menthol cigarettes. A black antismoking group withdrew its support from the legislation, citing the bill’s special exemption of menthol from a list of banned flavorings.

Ten former federal health officials, including seven secretaries of health, wrote Congress last week demanding that the bill specifically ban menthol.

One of the letter signers, Mr. Califano, said in an interview that Newport was a particular scourge because evidence suggested that menthol, by masking the harsh taste of tobacco, makes cigarettes easier to start. And the cigarette’s high nicotine yield also may make it more difficult to stop smoking, he said, although some tobacco researchers caution that the amount of nicotine taken in by smokers varies widely from person to person.

“It’s sort of a pincer attack on the smoker,” Mr. Califano said. “We’ll make it easier for you to smoke, and we’ll put more of the addicting substance in it to make sure you’re hooked.” Mr. Califano now runs the National Center on Addiction and Substance Abuse at Columbia University.

In a statement this week, Michael W. Robinson, a spokesman for Lorillard, said the nicotine ratings of Newport “fall within the same range” as those of other popular full flavor brands.

Mr. Robinson released data showing that nicotine yield in Newport 80, the most popular brand, had declined to 2.21 milligrams in 2006 from 2.55 milligrams in 2004, based on reports submitted to the tobacco program at the Massachusetts Department of Public Health.

In reports submitted to the Federal Trade Commission, which uses a different testing method, Mr. Robinson said, Newport delivered the same nicotine as equivalent styles of Kool, Salem, Camel, and Camel menthol.

Laurence Tisch died in 2003 and his brother, Preston Robert, died in 2005. A spokeswoman for Loews said that the three Tisch children on the board — besides James, who is Laurence’s son, they are James’s brother Andrew and their cousin Jonathan Tisch, who are co-chairmen — would not be interviewed for this article.

The spokeswoman, Candace Leeds, said the company could not talk because of the pending transaction. To New Yorkers, the Tisch family may be best known for philanthropic works that are evident throughout the city — including a children’s zoo at Central Park to a hospital at New York University to galleries at the Metropolitan Museum of Art.

The Tisches’ civic reach extends beyond New York, as well. When Senator Edward M. Kennedy had an operation for brain cancer last week, he chose a surgeon at the Preston Robert Tisch Brain Tumor Center at Duke University, located about an hour from Lorillard’s tobacco operations in Greensboro, N.C.

Other prominent members of the younger Tisch generation include Thomas J. Tisch, who runs the Four Partners investment fund and is chancellor of Brown University. Daniel J. Tisch is on the board of trustees of New York University and runs another family-affiliated investment fund, Mentor Partners. Steven E. Tisch, a producer credited with films including “Forrest Gump” and “The Pursuit of Happyness,”is also chairman of the New York Giants.

Jonathan Tisch, who is also the chairman of Loews Hotels and is a former chairman of New York City’s tourism bureau, is active in the Democrat Party. He is also a benefactor of Tufts University, which named its college of citizenship and public service after him.

But tobacco has long been associated with the Tisch name, too, in ways not always flattering.

It was Andrew Tisch, then Lorillard’s chairman and chief executive, who appeared alongside executives from the other six largest tobacco companies at a historic Congressional hearing in April 1994. There, all seven testified that they did not believe cigarettes were addictive.

When Representative Henry A. Waxman, Democrat of California, asked Mr. Tisch whether he knew that cigarettes caused cancer, Mr. Tisch answered, “I do not believe that.”

The next year, while Laurence Tisch was chairman of CBS, the television network drew harsh criticism by killing a planned “60 Minutes” segment about a tobacco industry whistle-blower, Jeffrey Wigand. The segment ran the following year, after Loews announced plans to sell its CBS stake to Westinghouse.

Other incidents in which cigarettes have clouded the Tisches’ social standing include the outcry in 1997 when James was nominated to head the Jewish philanthropy the UJA-Federation of New York.

Leaders of two Jewish groups sent letters opposing the nomination, saying Mr. Tisch’s tobacco industry ties might damage the organization’s reputation. Mr. Tisch nonetheless became the federation’s president.

The airplane banner incident occurred in 1993 after a Newport advertising plane repeatedly flew over Long Island beaches, including the Fire Island home of the financial writer Andrew Tobias, a supporter of antismoking causes. Mr. Tobias recently recalled that he had hired another plane to tail it, towing the banner reading “Larry Tisch sells cancer sticks.”

“There haven’t been any planes on those beaches since,” Mr. Tobias said.





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