Loews Corporation

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Loews Corporation

667 Madison Avenue
New York, New York 10321-8087
U.S.A.
(212) 545-2000
Fax: (212) 545-2714

Public Company
Incorporated: 1969
Employees: 27,100
Sales: $13.5 billion
Stock Exchanges: New York
SICs: 6331 Fire, Marine & Casualty Insurance; 6311 Life
Insurance; 2111 Cigarettes; 5094 Jewelry & Precious
Stones; 7011 Hotels & Motels; 1381 Drilling Oil & Gas
Wells

The Loews Corporation is a $13.5 billion conglomerate with extensive interests in tobacco, insurance, watches, hotels, and oil tankers. Major consumer brands include Bulova watches and Newport cigarettes. In 1990, a Financial World analyst characterized Loews as “a closed-end fund or a holding company disguised as an operating company.” Run since the post-World War II era by brothers Preston Robert (Bob) and Laurence (Larry) Tisch, the company was amassed through “value investing.” The Tisches earned a reputation for purchasing troubled firms, making them profitable, and selling them at a premium. Their major investments in the 1990s included the CBS television network.

Although the Tisch’s stake in the business has declined to about one-fourth over the years, the Loews Corporation is still considered by many to be a family business. Bob is known for his operational savvy, while elder brother Larry is considered the financial genius. In the early 1990s, the brothers shared the titles of co-chief executive officer and co-chairman. A number of Tisch offspring have also become prominent members of the company’s management.

The Tisch family has tended not to supervise the day-to-day operations of the corporation, however. Rather, the company functions through a network of divisions which exercise a large degree of autonomy and assume responsibility for performance. Initiative and innovation are encouraged and rewarded. When problems occur, however, they are brought quickly to Bob Tisch’s attention. Tisch boasted that there is no administrative labyrinth in which to lose or hide operational defects. “Loews is a big business run like a small business,” Tisch has said. “I hope we can keep it that way.”

The Tisch brothers were given an early business education by their father, Al, who owned a manufacturing plant in Manhattan. Bob and Larry were given the task of making phone sales to retail stores and wholesale distributors. The two brothers also helped operate a few summer camps their parents owned in New Jersey. This “hands on” experience was coupled with formal training. After a brief hiatus spent in the Army, Bob graduated with a degree in economics from the University of Michigan in 1948. Larry graduated cum laude from New York University’s School of Commerce at the age of 18, went on to earn an MBA from the Wharton School in Philadelphia, and later enrolled in Harvard’s law school.

In 1946, Al and Sadye Tisch sold their summer camps and purchased the Laurel-in-the-Pines Hotel in Lakewood, New Jersey. The hotel business went well, and soon became more than the parents could handle alone. Larry dropped out of Harvard in order to help run the business and Bob soon followed. It wasn’t long before the older couple decided to sign over their share of the hotel (worth about $75,000 at the time) to their sons and give them control of the operation.

The brothers soon began leasing two other small New Jersey hotels and managed to turn a profit. Then, in 1952, they acquired two grand but old hotels in Atlantic City called the Brighton and the Ambassador. They demolished one to build a motel in its place, and quickly resold the other at a profit. Later, the Tisches liquidated some of their New Jersey investments to purchase their first two hotels in New York City. These early transactions established the pattern that would characterize their later business dealings, which grew increasingly diverse and valuable.

In 1956, with only eight years’ experience in the business, Bob and Larry erected the $17 million Americana Hotel in Bal Harbour, Florida, and paid for it in cash. Although it was subsequently sold to Sheraton, it represented an important step in the brothers’ careers. With the Americana, they firmly established themselves among the major hotel operators, and later acquired such prominent hotels in the United States as the Mark Hopkins, The Drake, the Belmont Plaza, and the Regency.

In 1959 a major anti-trust ruling forced Metro-Goldwyn-Mayer to relinquish ownership of Loew’s Theaters. This decision created an opportunity for the Tisch brothers, allowing them to move into a new business area. Six months before MGM was to divest Loew’s, Bob and Larry purchased a large stake in the theater chain; by May of 1960 they had gained control of the company.

The brothers did not enter into the theater business because they knew about the motion picture industry. Nor did they purchase Loew’s because it was already a profitable operation on its own. On the contrary, Loew’s theaters were losing money. They were large, multi-tiered movie houses with high ceilings and interiors reminiscent of the industry’s “golden age,” by this time long past. They played only one motion picture at a time and were rarely filled to capacity. Television and the proliferation of films coming out of Hollywood meant that theaters would have to cater to various tastes simultaneously in order to secure larger audiences. The old Loew’s theaters were not designed for this purpose.

The reason Bob and Larry Tisch purchased Loew’s had to do with real estate. The Loew’s theaters, though antiquated, were located on valuable city property. It was the opportunity to acquire this valuable property that prompted the brothers to purchase the company. Almost immediately they began liquidating the theaters, demolishing 50 of them in a matter of months and then selling the vacant lots to developers. This, of course, hastened the demise of the palatial movie house, but it was nonetheless a necessary business tactic. Loews (the apostrophe has since been eliminated) remains a prominent participant in the movie industry with theaters in 26 metropolitan areas. However, its 143 screens are located in only 61 facilities. There are often four screens in one building, each showing a different movie.

The long-established and well-recognized Loews name became the corporate title under which all Tisch operations (including hotels) were placed. The new Loews Corporation ran smoothly and efficiently, turning substantial profits every year. By 1968 the brothers again had the capital and the inclination to diversify and invest in a new business sector. This time they acquired Lorillard Industries, America’s oldest tobacco manufacturer.

Lorillard, the maker of Kent and Newport cigarettes, had once been a major company with a large share of the tobacco market. However, managerial incompetence and discord had paralyzed the company, bringing it near collapse. Upon assuming control of Lorillard, the first thing Larry Tisch did was examine the firm’s subsidiaries, particularly its candy and cat food divisions which were consuming a disproportionate amount of resources. The brothers discovered that the top executives spent 75 percent of their time on candy and cat food, which together made up only 5 percent of Lorillard’s total business. Lorillard divested itself of these interests and of the executives who were so fond of them, then redirected the company toward its tobacco operations. Market share slippage was reversed, and Lorillard climbed back to the top ranks of America’s tobacco market.

A similar scenario took place in 1974, when Loews acquired CNA Financial Corporation, a large insurance firm. The Chicago-based conglomerate had reported a $208 million deficit that year and was expected to lose more. Like Lorillard, its subsidiaries were draining the financial resources of the company. CNA’s tangential interests were poorly managed and veritable “money pits.” Moreover, there was considerable waste at the top of CNA’s corporate structure.

When Loews took charge it divested unprofitable or distractive subsidiaries to concentrate on the worthwhile core businesses. The Tisch brothers then took aim at the wastefulness that plagued CNA’s headquarters. Many executives were fired as Tisch austerity measures prevailed over past CNA lavishness. The 3,000-square-foot suite of the former chairman was rented out, as was the corporate dining room. The streamlining had a dramatic and positive effect. In 1975 CNA earned a $110 million profit, and remained financially sound over the next decade, achieving annual revenues of over $3 billion by the late 1980s.

Loews’ next major turnaround target was the Bulova Watch Co. In 1979, the Tisch brothers bought 93 percent of the then-troubled firm for $38 million. At the time, Bulova’s quality-control problems had contributed to its slip from the top of the watch market to the number-two spot. Not only had long-time rival Seiko Corporation won the market share battle, but Bulova was also threatened by Timex Enterprises Inc.’s introduction of competitively-priced entries. It looked to some observers as if Bulova had squandered its brand cachet; the name was simply not recognized by a new generation of consumers.

The Tisch brothers applied their proven method of managerial restructuring, but without total success. Bulova’s problems went beyond personnel and corporate networks: the product itself needed to be revised. James Tisch, Larry’s son, headed the operation and immediately introduced 600 new watch styles, complete with extended warranties. To deal with the image problem, an extensive advertising campaign was launched. The company recovered, but slowly. By 1984 it had cut its losses to $8 million (roughly half of its 1980 total), yet it was still not paying for itself. The company did not turn a profit until 1986. That year, Bob Tisch accepted an appointment as U.S. Postmaster General. Despite the concerns of those who felt his absence would weaken the company’s performance, most analysts contended that Bob Tisch’s move to Washington D.C. would help Loews, citing the advantages of both political and financial connections.

Late in 1985 Larry Tisch sold the company’s namesake movie theaters and purchased a significant amount of CBS Inc. stock to help the company fight a takeover attempt by Ted Turner. Throughout 1986 Tisch increased Loews’ share holdings in CBS to 24.8 percent and obtained a seat on the board of directors. He was elected president of CBS that September, much to the relief of stockholders and employees, who had grown frustrated and uneasy during the Turner takeover attempt.

Tisch’s popularity was short-lived, however. Intending to operate CBS as if it were any other business, he took measures to alleviate waste and make CBS more cost-effective. Wage cuts and spending reductions, along with wholesale firings, caused a serious rift in the huge broadcasting firm. The news division, traditionally given considerable leeway in regard to fiscal accountability, was especially hard hit. Some wondered if Tisch would be able to mend CBS without sacrificing the people and principles that once made it the most respected of the three major American broadcasting networks. Eventually, Loews reduced its investment in CBS to 18 percent through sale of stock back to the company.

Bob Tisch’s activities and interests outside Loews garnered attention as well. He was one of New York City’s most vocal supporters and had been elected over 15 times to the chairmanship of New York’s Convention and Visitors Bureau. In fact it was Bob Tisch and the Bureau’s president, Charles Grillett, who came up with the idea of using an old jazz expression, the “big apple,” to represent New York City. Later, Bob would represent the metropolis as its “official ambassador” (read lobbyist) in Washington, D.C. In 1990, he accepted the chairmanship of that city’s Chamber of Commerce. In 1991, Bob Tisch paid over $75 million to acquire half of the New York Giants professional football team.

Over the course of the 1980s, the Tisches had reduced their stake in Loews from 45 percent to 24 percent, prompting some analysts to speculate that they were preparing to dismantle their conglomerate. Instead, the company—which had amassed a $1.75 billion “war chest”—started investing in new ventures, most notably oil. By early 1990, Loews had spent $75 million on oil rigs and acquired Diamond M Offshore Inc., a Houston, Texas, drilling company. Loews amassed the world’s largest fleet of offshore drilling rigs with the 1992 purchase of Odeco Drilling, Inc., which was merged with Diamond M. In spite of that status, Loews’ drilling segment lost over $103 million in 1992, 1993, and 1994. The company’s annual report for the latter year blamed regional overcapacity and reduced demand for the negative results.

While other large hotel companies struggled in the early 1990s, Loews thrived under the direction of Jonathan Mark Tisch. Tisch was praised for creative, ambitious, and often philanthropic promotions. His annual “Monopoly Power Breakfasts” featured celebrity contestants who played the famous Parker Brothers game competed on a customized board. Proceeds of the event went to charities. The upscale hotel chain’s “Good Neighbor Policy” and its recycling programs earned it industry accolades as well. Following an industry wide trend, Loews Hotels lost $1.79 million in 1993, then reported a net profit of $17.02 million in 1994.

The Tisch’s appeared to be continuing to apply their turnaround strategies to the Bulova division in the early 1990s. In 1995, they completed the divestment of that subsidiary’s defense interests in order to concentrate on the core timepiece business. Although sales and profits declined as a result, this segment was able to stay in the black in the early 1990s.

Loews’ two largest segments, cigarettes and insurance, were very vulnerable in the early 1990s. Price wars prompted the company to launch a bargain cigarette brand, Style, in 1992, then cut the retail price of its flagship Newport brand by 25 percent in 1994. In the decidedly anti-smoking climate that predominated then, cigarette manufacturers already faced with legislation that banned smoking from virtually all public places also encountered many lawsuits. As of fiscal 1994, Lorillard was a named defendant in 17 individual and class action suits brought by cigarette smokers, their estates and heirs, and even flight attendants who claimed to be victims of second-hand smoke. Loews and Lorillard noted that, while losses in these cases would not hurt the company’s long term performance, they could encourage more litigation.

When Loews subsidiary CNA Financial acquired The Continental Corporation in December 1994 for $1.1 billion, it became America’s third-largest property and casualty insurer. It also took on Continental’s liabilities regarding Fibreboard Corporation, a company that manufactured asbestos insulation products from 1928 to 1971. In 1993, Continental and its co-defendants reached a $2 billion settlement (of which Continental was responsible for $1.44 billion) to cover past and potential liabilities. Although the agreement had to be approved by a federal court—leaving open the possibility for even greater expense—Loews expressed confidence that the problem would not “have a material adverse impact on the equity of the Company.”

Titular changes in the early 1990s seemed to indicate preparations for a changing of the guard at Loews. In the late 1980s, Bob had occupied the positions of president and chief operating officer, while Larry acted as chairman and CEO. But as the two brothers became septuagenarians, they consolidated their responsibilities, becoming co-chairmen and co-CEOs. James S. Tisch, a likely successor, advanced to president and chief operating officer, while Andrew H. Tisch led Lorillard.