Loews Could Be Worth More Dead Than AliveElizabeth Lesly
For decades, Laurence A. Tisch, the investor, has been known for his Midas touch. A cagey opportunist who has routinely been lumped in the league of such prescient luminaries as Warren Buffett, Tisch has had a talent for buying companies at bargain prices and watching his investments blossom. One of his biggest triumphs was putting an estimated $706 million into CBS Inc., a stake that is now worth roughly $1.1 billion.
But things aren't looking nearly so spectacular for Larry Tisch, the executive. Sure, CBS is prospering. But the attention to the bottom line that Tisch became famous for at the network is sorely lacking at his corporate homestead, New York-based Loews Corp., where the Tisch family holds 29% of the stock. Loews' Lorillard Inc. tobacco unit has been savaged by the cigarette price war. Its insurance holding, CNA Financial Corp., has been hit by back-to-back disasters: claims for Hurricane Andrew and the need to reserve billions for asbestos-related litigation. And the other businesses that make up the Loews conglomerate--hotels, oil drilling, and clocks--are either too small or too weak to pick up the slack.
NO RESPECT. That has made for some dismal results. Loews' income from continuing businesses may total only $66 million this year, estimates Merrill Lynch & Co. analyst Allan Kaplan. That's better than last year's loss of $267.8 million but still 90% below 1991's profit of $668 million. And revenues are slipping as well, down 3%, to a projected $13.3 billion this year. Ironically, Loews' stock has assumed some of the bargain-basement qualities that attract bottom-feeders such as Tisch in the first place. Loews now trades at just a smidgen above book value. Its stock price has tumbled 23% in a year, to 921 2.
Small wonder that the Wall Street cachet of the company the Tisch family built has dissipated considerably. In October, the Council of Institutional Investors named Loews the 37th-worst-performing of 1,000 large U.S. public companies. And when Loews came out with a $400 million debt offering in October, manager J.P. Morgan Securities Inc. found the bonds a hard, slow sell. It took Morgan two weeks to sell the bonds--about twice as long as the firm had expected. "It's ludicrous. They don't get any respect" on Wall Street, says Scott M. Black, a Tisch fan and institutional money manager at Delphi Management Inc., which holds 61,000 Loews shares.
Larry Tisch, 70, and his brother, co-CEO Preston Robert Tisch, 67--both of whom declined to be interviewed for this story--began assembling their hodgepodge of businesses in 1960. First came the acquisition of Loews Theaters, which gave the family company its name, even though the theaters were eventually sold off. Next came Lorillard in 1968, and CNA in 1974. Its most recent acquisition was Odeco Drilling Inc. in 1992. The Brooklyn-born brothers weren't into empire-building. Instead, they made their golden reputation by buying assets dirt cheap, reaping their cash flow, and then selling pieces at the most opportune time.
Some asset plays have paid off handsomely: In 1982, Loews bought seven oil tankers for $42 million--approximately their scrap value. Loews chartered the tankers for a while, sold one for $15 million, and then sold a half-share in the remaining six for $154 million to London's Hellespont Shipping Corp. Deals such as that allowed Loews to deliver a healthy average annual return on equity of 18% between 1982 and 1991.
Tisch continues to display a deft touch when it comes to playing the market, as well. True, he sold off a huge chunk of his bank stocks in the summer of 1991, shortly before lower interest rates ignited the prolonged rally in bank shares. But Loews' investment portfolio--which recently has included huge equity stakes in Champion International Corp. and Homestake Mining Co., as well as CBS--is expected to contribute $425 million to Loews' bottom line this year. That's up 91% from last year.
Still, it's becoming apparent that Loews is no longer the treasure chest it once was. Many of the more appealing assets have been sold. And Loews appears to be stuck with businesses that aren't performing well.
Take Lorillard, which in 1991 provided Loews with fully 64% of its profits from continuing businesses. For a few months after industry leader Philip Morris Cos. touched off a cigarette price war in April by lowering the price of its Marlboro brand, Lorillard held up well. Its flagship Newport menthol brand, which accounts for 67% of Lorillard's revenues, saw a 1% increase in supermarket sales, to $188.3 million, in the year ended Sept. 12, according to Information Resources Inc. Why the strength? Newport is the leading brand among African Americans, a group generally regarded as more brand-loyal and less likely to switch to discount brands, says Sanford C. Bernstein & Co. tobacco analyst Gary Black.
THINNING SMOKE. Unfortunately for Loews, that strength didn't hold. In August, Lorillard was forced to slash prices on Newport and other brands, such as Kent and True. Third-quarter cigarette sales fell 24%, to $348.7 million, while profits dived 60%, to $58.4 million. And while other tobacco companies, such as Philip Morris and RJR Nabisco Inc., can look to booming overseas sales to salvage their bottom lines, Lorillard has no international operations to lessen its dependence on the disintegrating American market. Tisch sold Lorillard's international tobacco business to BAT Industries PLC in 1977 for $141 million. Although it was clear even then that domestic tobacco consumption was in a decline, Tisch bet that U.S. price increases would continue to fuel profit growth. "It has been a harvest strategy," says Gary Black. Now, "they don't have the growth prospects [of their competitors]. The best you can hope for out of Lorillard is flat profits."
The outlook is little better for CNA, the insurance giant that is 83% owned by Loews. In 1974, Tisch bought a controlling interest in then struggling CNA for $100 million. Part of the appeal, analysts say, was that Loews could apply tax advantages from CNA's operating losses to offset income from other, more profitable businesses, such as Lorillard. But CNA's businesses are now being battered on all fronts. Its Continental Casualty Co. unit, a leading property and casualty insurer, took a $270 million hit in 1992, mostly from Hurricane Andrew. Then there was a $2 billion addition to reserves in anticipation of future asbestos-related claims.
And because of intense pricing pressure in the industry, Continental has been unable to raise premiums. Net income for the first nine months of 1993 was down 70%, to $180.1 million. Worse, CNA has been plagued by below-average underwriting results for years. Since 1989, it has paid out an average of $1.16 in claims and expenses for each $1 received in premiums. The average payout for all commercial insurers is about $1.12.
And like other insurers, CNA is being bedeviled by low interest rates. It's having a harder time offsetting those weak underwriting results with investment gains on its $24 billion portfolio, which is managed by Loews.
EMPTY BEDS. Nor are any of Loews' other businesses in great shape. Loews Hotels, with nine hostelries in cities from Los Angeles to Quebec, is expected to earn only $3 million this year, on revenues of $185 million. That includes fees it gets from managing five other hotels. Again, Loews is stuck in a tough end of the industry--luxury hotels, where "the external environment has been terrible," says analyst Sheldon Grodsky of Grodsky Associates Inc., a securities firm. "The overall market has been glutted for years." And though Tisch aficionados may argue that the hotels are valuable assets, finding a buyer for any hotel Loews might want to sell could be tough.
The performance of Loews' Bulova Corp., which makes watches and clocks, is equally uninspiring. Its sales have stagnated, and its profits have been dwindling for years. Bulova's defense subsidiary, which makes fuses and other timing devices, has been hard hit by the downturn in military spending.
Despite myriad problems, the Tisches are under no immediate pressure to shake up their empire. The company remains very much a family affair. Larry's sons have key positions: Andrew H. Tisch runs Lorillard, James S. Tisch is Loews' executive vice-president. Thomas J. Tisch oversees the family's private holdings. Jonathan M. Tisch, Preston's son, runs Loews Hotels.
And any change in direction isn't likely to be dictated by Loews' directors. The Tisches hold 5 out of 11 board seats. And the outside directors are apparently not concerned about the precipitous decline in the operating results of most of Loews' businesses. The stock "hasn't sagged very much. I don't think it's anything to worry about," says Charles B. Benenson, a Loews board member who has been involved in Manhattan real estate deals with the Tisches for years. "It certainly doesn't cause any concern to me. I have the greatest confidence in the Tisches."
Some Tisch-watchers say Larry would have attacked Loews' problems more aggressively if it weren't for his preoccupation with CBS. His brother, Bob, has other distractions, too. In 1991, he bought half of the New York Giants football team.
But many on Wall Street believe that an investor as savvy as Larry Tisch won't stand idly by while Loews deteriorates. Some investment bankers speculate that Tisch is just biding his time before selling off one or more of the businesses. "He's constantly tallying the value of what he owns and what he could earn with an alternative use of the money," says an admiring investment banker. But "he has the luxury to pick his time [to sell]. He's very pragmatic." Delphi's Black reckons Loews has a potential breakup value of $150 to $160 a share.
Already, there has been talk on Wall Street that Tisch would like to sell his oil-rig business, perhaps through a public offering. But it won't happen right away. Loews, which spent about $450 million in 1989 and 1991 to acquire the world's largest fleet of offshore rigs, has lost $106 million running the operation since 1989. And there's doubt that Tisch's oil rigs are worth anywhere near what he paid. "We know they're under water on this," says another investment banker. "The question is, can they engineer a public offering and make themselves whole?" Right now, with oil stocks generally in the dumps, the answer is probably no.
With the outlook for Loews' other businesses just as bleak, no one expects Tisch to pull off any big deals in the near future. But with anemic profits and a weak stock price, there's no doubt that Loews is in sore need of a little of that old Tisch magic.