Wealth Creation and Destruction from Brooke Group's Tobacco Litigation Strategy

Dahiya, Sandeep; Yermack, David

Download This Paper

Open PDF in Browser

Add Paper to My Library

Wealth Creation and Destruction from Brooke Group's Tobacco Litigation Strategy

NYU Working Paper No. FIN-99-050

44 Pages Posted: 11 Nov 2008

See all articles by Sandeep Dahiya

Sandeep Dahiya

Georgetown University - Department of Finance

David Yermack

New York University (NYU) - Stern School of Business

There are 2 versions of this paper

Date Written: December 1999

Abstract

We examine value creation and destruction in the tobacco industry due to the radical litigation strategy pursued by Brooke Group and its CEO, Bennett LeBow. Brooke Group has a tiny market share, low margins, high leverage, and a high concentration of management ownership.Beginning in 1996 the firm reached settlements in lawsuits brought against all cigarette companies by class action plaintiffs and U.S. state governments. Brooke Group's actions, which included promises to cooperate in litigation against its rivals, spurred other companies to reach settlements on less favorable terms. The settlements eventually led to massive wealth destruction within the tobacco industry but impressive returns for shareholders of Brooke Group.

Suggested Citation: Suggested Citation

Dahiya, Sandeep and Yermack, David, Wealth Creation and Destruction from Brooke Group's Tobacco Litigation Strategy (December 1999). NYU Working Paper No. FIN-99-050, Available at SSRN: https://ssrn.com/abstract=1298271