Loews Corporation

Public Company
Incorporated: 1969
Employees: 21,600
Sales: $17.91 billion (2006)
Total Assets: $76.88 billion (2006)
Stock Exchanges: New York
Ticker Symbol: LTR
NAIC: 551112 Offices of Other Holding Companies; 524126 Direct Property and Casualty Insurance Carriers; 312221 Cigarette Manufacturing; 213111 Drilling Oil and Gas Wells; 486210 Pipeline Transportation of Natural Gas; 211111 Crude Petroleum and Natural Gas Extraction; 721110 Hotels (Except Casino Hotels) and Motels

Loews Corporation is a holding company with diversified interests in insurance, tobacco, the energy industry, hotels, and watches. Run from the post-World War II era to the late 1990s 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. Bob was known for his operational savvy, while elder brother Larry was considered the financial genius. In the early 21st century, Loews remained in the control of the Tisch families, who held more than 20 percent of the firm’s publicly traded stock. Two sons of Larry, James and Andrew Tisch, and a son of Bob, Jonathan Tisch, began running the company in the late 1990s.

Among Loews’ major holdings is an 89 percent stake in the publicly traded CNA Financial Corporation, one of the largest property and casualty insurance companies in the United States; CNA contributes roughly 58 percent of Loews’ revenues. Another 22 percent of revenues is derived from the wholly owned Lorillard, Inc., the oldest and third largest U.S. cigarette maker and the producer of such brands as Newport, Kent, and True; late in 2007, however, Loews announced plans to spin off Lorillard. Loews derives around 12 percent of its revenues from its 51 percent stake in the publicly traded Diamond Offshore Drilling, Inc., one of the world’s leading contract drillers of offshore oil and gas wells. Other energy holdings include a 70 percent interest in the publicly traded Boardwalk Pipeline Partners, LP, operator of interstate natural gas pipeline systems, and full ownership of HighMount Exploration & Production LLC, a firm engaged in the exploration and production of natural gas in the United States. Another wholly owned subsidiary is Loews Hotels Holding Corporation, operator of 18 hotels and resorts in the United States and Canada.

EARLY INVOLVEMENT IN HOTELS

The Tisch brothers received an early business education from 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 M.B.A. from the Wharton School in Philadelphia, and later enrolled in Harvard University’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 was not 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 in the 1970s, 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.

ADDING THEATERS (1960) AND TOBACCO (1968)

In 1959 a major antitrust ruling forced Metro-Goldwyn-Mayer (MGM) 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 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, multitiered 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, although 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. Loew’s remained a prominent participant in the movie industry into the early 1980s.

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The long-established and well-recognized Loews name became the corporate title under which all Tisch operations (including hotels) were placed.Loews Corporation, a holding company formed in 1969, 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, the nation’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. Managerial incompetence and discord, however, 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 the U.S. tobacco market.

ACQUISITIONS OF CNA (1974) AND BULOVA (1979)

A similar scenario took place in 1974, when Loews acquired CNA FinancialCorporation, 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- Page 300  |  Top of Articlefoot 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 longtime 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, albeit 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.

INVESTMENT IN CBS

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’ 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 signify 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.

ENTRANCE INTO OFFSHORE DRILLING

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 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 1993 to form Diamond Offshore Drilling, Inc. 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 Hotels thrived under the direction of Jonathan Mark Tisch, son of Bob Tisch. Jonathan 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 competing 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 Tisches continued to apply their turnaround strategies to Bulova 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, Bulova was able to stay in the black in the early 1990s.

Loews’ two largest investment areas, cigarettes and insurance, were very vulnerable in the early 1990s. Price wars prompted Lorillard to launch a bargain cigarette brand, Style, in 1992, then cut the retail price of its flagship Newport brand 25 percent in 1994. In the decidedly antismoking climate that predominated, cigarette manufacturers already faced with legislation that banned smoking from virtually all public places also encountered many lawsuits. As of fiscal year 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 secondhand smoke.

When Loews subsidiary CNA Financial acquired Continental Corporation in December 1994 for $1.1 billion, it became the third largest property and casualty insurer in the United States. 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 codefendants reached a $2 billion settlement (of which Continental was responsible for $1.44 billion) to cover past and potential liabilities.

EXIT FROM CBS

Another key divestment came in 1995, when Loews engineered the sale of CBS to Westinghouse Electric Corporation for $5.4 billion. This ended Larry Tisch’s controversial reign at CBS, and Loews’ share of the proceeds amounted to nearly $900 million, swelling the company’s coffers. In late 1995, Loews took Diamond Offshore public, selling about 30 percent of the company in an offering that raised $300 million.

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. Yet as the two brothers became septuagenarians, they consolidated their responsibilities, becoming cochairmen and co-CEOs. James S. Tisch, son of Larry and a likely successor, advanced to president and chief operating officer, while Andrew H. Tisch, another son of Larry, led Lorillard.

In late 1995 Lorillard agreed to buy six discount cigarette brands from B.A.T. Industries PLC for about $33 million, but in April 1996 the Federal Trade Commission rejected the deal on antitrust grounds. Loews Hotel, meantime, entered into a joint venture with MCA Inc. in 1996 to develop three themed luxury hotels in Orlando, Florida, as part of MCA’s expansion of its Universal Studios Florida theme park. The first, the Portofino Bay Hotel, opened in the fall of 1999 with 750 rooms. This property aimed to replicate the famous Italian seaside village of Portofino. The Hard Rock Hotel opened in January 2001 and the Royal Pacific in June 2002. After helping to develop the hotels, Loews Hotels managed the properties under a contract arrangement. With the travel industry enjoying a resurgence in the economic boom time of the late 1990s, Loews Hotels moved ahead with other expansion plans as well. The company returned to Miami in 1998 with the opening of the Loews Miami Beach Hotel, an 800-room property in the Art Deco district of Miami Beach. In early 2000 the 590-room Loews Philadelphia Hotel was opened near the downtown convention center, and Loews Hotels also purchased the Coronado Bay Resort hotel in San Diego, California.

SUCCESSION TO NEW TISCH GENERATION

In 1997 Loews lost more than $900 million on a pretax basis from its $70 billion securities portfolio as a result of the bearish Larry Tisch’s short-selling strategies against the long-running bull market. Net income as a result fell to $793.6 million from the $1.38 billion figure of the previous year. Late in 1998 the succession from one Tisch generation to another came to fruition. The Tisch brothers stepped down from their co-CEO positions but remained cochairmen. James Tisch was promoted to president and CEO. In addition, an office of the president was formed consisting of James Tisch, Andrew Tisch, who also held the title of chairman of the executive committee, and Jonathan, who also continued to serve as president and CEO of Loews Hotels.

The new leadership at Loews faced many challenges, not the least of which was the increasing level of litigation and regulation facing Lorillard. The settlement costs from tobacco-related suits began to reach significant levels in 1997, when Lorillard paid out $122 million. Payments then escalated to $346.5 million the following year. Late in 1998 Lorillard and the other major tobacco companies reached a $206 billion settlement with 46 states for the reimbursement of public healthcare costs associated with smoking. Settlements with other states totaled another $48 billion. Lorillard took pretax charges of $579 million and $1.07 billion in 1998 and 1999, respectively, in connection with the settlements, the payments for which were to continue into the 2020s. In September 1999 the U.S. Justice Department filed a massive lawsuit against the major tobacco makers, modeled after the state lawsuits, with a potential industry liability well in excess of the state settlement.

Individual and class-action lawsuits continued as well, with Lorillard a defendant in no fewer than 825 cases as of the end of 1999. The most important of these was a class-action lawsuit filed in Florida, Engle v. R.J. Reynolds Tobacco Co., et al. The Engle trial began in October 1998, with a jury returning a verdict against the defendants in July 1999, finding that cigarette smoking is addictive and causes lung cancer, and that the tobacco companies had engaged in “extreme and outrageous conduct” in concealing the dangers of smoking from the public. The penalty phase of the trial then commenced. In April 2000 the jury awarded $12.7 million in compensatory damages to three sample plaintiffs, but then three months later delivered a potentially huge blow to the industry when it awarded $144.9 billion in punitive damages, by far the largest punitive damage award in U.S. history, dwarfing the $5 billion awarded in a suit against Exxon Corporation in connection with the Exxon Valdez oil spill. Lorillard’s share was $16.25 billion. The tobacco companies immediately vowed to appeal, a process destined to last years. In the meantime, Lorillard and the other tobacco firms had been able to manage the increasing litigation payments simply by raising cigarette prices.

TURNAROUND EFFORTS AT CNA

Meanwhile, with the insurance market slumping and earnings down, CNA was undergoing a restructuring. In 1998 the company cut its workforce by 2,400, consolidated some processing centers, and exited from certain areas, such as entertainment and agriculture insurance. In October 1999 CNA sold its personal lines insurance business, which included automobile and homeowners insurance, to the Allstate Corporation. In early 2000 CNA put its life insurance and life reinsurance units on the block but in August of that year announced that it would keep them.

CNA’s struggles continued. In 2001 the company was forced to boost its claims reserves by $2 billion, in part to cover asbestos-related claims as well as to cover shortfalls in the amounts set aside for various liability policies, including commercial auto and medical malpractice. In addition, CNA was responsible for around $470 million in claims related to the destruction of the World Trade Center during the September 11, 2001, terrorist attacks on the United States. Late in 2001 CNA launched a restructuring to streamline its property-casualty and life insurance operations that involved the elimination of 1,850 jobs, while at the same time moving to discontinue its variable life and annuity business. A charge of $125 million was booked in connection with this restructuring. CNA consequently posted a net loss of more than $1.6 billion for 2001, which pushed Loews into the red as well, to the extent of a $589.1 million loss.

To further prop up CNA, Loews pumped an additional $1.75 billion into the company. In 2002 Loews installed a new management team led by CEO Stephen W. Lilienthal to completely overhaul CNA. By 2004 CNA had repositioned itself as primarily a commercial property and casualty insurer having jettisoned its life, group, reinsurance, and trust businesses. The effort to clean up the aftermath of poor underwriting practices in the 1990s continued as CNA had to increase its reserves by an additional $1.8 billion in 2003. Once again, the red ink at CNA spilled over to Loews, as the latter suffered a net loss of $610.7 million that year. By 2006, however, CNA appeared to have turned a corner, posting its strongest results ever, including record net income of $1.11 billion.

END OF TOBACCO ROAD, FURTHER ENERGY VENTURES

In the meantime, on the tobacco front, Loews in early 2002 created a tracking stock called Carolina Group that was intended to reflect the performance of its Lorillard subsidiary. An initial public offering (IPO) of Carolina Group stock raised $1.1 billion, but Loews nonetheless retained full ownership of Lorillard. The litigation picture for U.S. tobacco brightened the following year when a Florida appeals court vacated the $144.9 billion Engle judgment and ordered the decertification of the class involved in the case. This ruling was upheld by the Florida Supreme Court in 2006. Rulings had also come down on the side of the tobacco companies in regard to the Justice Department’s lawsuit, which appeared to negate another major threat. By 2007 Lorillard remained a defendant in roughly 2,900 cigarette-related product-liability lawsuits. Loews, however, had plans to extricate itself from the tobacco field. In December 2007 the company announced its intention to spin off Lorillard as a separate, publicly traded company in mid-2008.

When Larry Tisch died in November 2003, Bob Tisch became sole chairman, a position he held until his own death almost two years later. At that point, Andrew and Jonathan Tisch were named cochairmen, with James Tisch remaining president and CEO. This leadership troika pushed Loews further into the energy field, building on the Diamond Offshore business that the previous Tisch generation had created.

In May 2003 Loews acquired Texas Gas Transmission, LLC (TGT), from the Williams Companies, Inc., for $795 million in cash plus the assumption of $250 million in debt. TGT owned and operated a 5,800-mile natural gas pipeline and storage system originating in Louisiana and Texas and extending to markets in the South and the Midwest. Then in December 2004 Loews more than doubled its natural gas pipeline assets by acquiring Gulf South Pipeline, LP from Entergy-Koch, LP for $1.14 billion. Gulf South’s assets included 8,000 miles of natural gas pipeline in the U.S. Gulf Coast region, making for a complementary fit with the TGT system. Loews created a new subsidiary called Boardwalk Pipeline Partners, LP for its pipeline operations, and it took this subsidiary public in November 2005 through an IPO of 14.5 percent of Boardwalk’s shares. Most of the $271.4 million in net proceeds was used to pay down Boardwalk’s debt.

Loews plunged even deeper into energy in July 2007 with its acquisition of an array of natural gas exploration and production assets from Dominion Resources, Inc., for $4 billion. The assets included properties in the Permian Basin in Texas, the Antrim Shale in Michigan, and the Black Warrior Basin in Alabama with proven reserves of natural gas and natural gas liquids of approximately 2.5 trillion cubic feet of gas equivalent. These assets formed the basis for a new Loews subsidiary called HighMount Exploration & Production LLC. Several months later, in January 2008, Loews offloaded the smallest of its subsidiaries, Bulova, selling it to the Japanese watchmaker Citizen Watch Co., Ltd., for $250 million. With one divestment complete and another (Lorillard) pending, Loews was posed to narrow its holdings to the property and casualty insurance operations of CNA, its various energy interests, and Loews Hotels.

Company Perspectives

Our Company maintains a long-term orientation in guiding our subsidiaries, seeking acquisitions and managing the holding company’s capital.

We help our subsidiaries develop first class management terms, and we consult intensely on matters of strategy and capital management, but ultimately we rely on our subsidiaries’ managers to determine and implement their strategies.

We seek out undervalued opportunities to create value, whether through cash flow generation or asset appreciation, and we focus on identifying and managing downside risks.

Key Dates

1956:

Tisch brothers erect the Americana Hotel in Bal Harbour, Florida, establishing themselves as major hotel operators.

1960:

Tisch brothers gain control of Loew’s Theaters (the apostrophe is later dropped from the corporate name).

1968:

Tisch brothers acquire Lorillard, the oldest U.S. tobacco manufacturer.

1969:

Tisch brothers create a holding company, Loews Corporation, for their diversified interests.

1974:

Loews acquires CNA Financial Corporation.

1979:

Company purchases a majority stake in Bulova Watch Co.

1985:

Movie theaters are divested and a 25 percent stake in CBS is purchased, with Larry Tisch becoming president.

1990:

Company acquires Houston drilling firm Diamond M Offshore.

1992:

Odeco Drilling is acquired.

1993:

Diamond M and Odeco are merged to form Diamond Offshore Drilling, Inc.

1994:

CNA acquires Continental Corporation.

1995:

Loews engineers the sale of CBS to Westinghouse, with Loews gaining nearly $900 million from the sale; Loews takes Diamond Offshore public.

1998:

Tisch brothers step down as co-CEOs; James Tisch is promoted to president and CEO. Lorillard and other tobacco firms reach $206 billion settlement with 46 states over tobacco-related health costs.

2002:

New management team at CNA begins an overhaul that eventually repositions the firm as primarily a commercial property and casualty insurer.

2003:

Loews enters the natural gas pipeline business via the acquisition of Texas Gas Transmission, LLC.

2005:

Company takes its pipeline subsidiary, Boardwalk Pipeline Partners, LP, public.

2007:

Loews spends $4 billion for an array of U.S. natural gas exploration and production assets that form the basis for the new subsidiary HighMount Exploration & Production LLC; company announces its intention to spin Lorillard off as a separate, publicly traded company.

2008:

Loews sells Bulova to Citizen Watch Co., Ltd.