Wealth Creation and Destruction from Brooke Group's Tobacco Litigation Strategy
December, 1999
Sandeep Dahiya and David Yermack
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.
Subject: Corporate Finance/Bankruptcy Finance & Law
Classification: Empirical
Yermack: (212) 998-0357 dyermack@stern.nyu.edu
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