Vector Group is small potatoes next to Big Tobacco, but it's reaching into new niches. The holding company's Liggett Group makes discount cigarettes under brands including Liggett Select, Grand Prix, Pyramid, and Eve, and several private-label brands of cigarettes for other companies, including the USA brand. The group is also engaged in developing "reduced risk cigarette products" through its Vector Tobacco (VT) subsidiary. VT launched the QUEST brand, a line of low-nicotine and nicotine-free cigarette products, in 2003 but exited the business in 2009. The firm's real estate arm, New Valley, owns a 50% stake in the New York City broker Douglas Elliman Realty. It's looking to acquire other properties.
Following the discontinuation of the manufacturing and sale of QUEST brand cigarettes, the company's discount and private-label cigarette lines generate all of its sales. While Liggett's sales appeared to have soared in 2009 -- rising about 42% over the year earlier period -- the increase was primarily due to price increases in 2008 and 2009 on all of its brands in conjunction with user fees imposed by the passage of the bill that granted the US Food and Drug Administration jurisdiction over tobacco in mid-2009. (Liggett's tobacco profits actually declined by about 2.5% in 2009 vs. 2008.)
Recently Liggett's discount niche -- which it pioneered back in the 1980s -- has become increasingly crowded and competitive as makers of premium cigarettes have begun selling the brands at discount prices and launching discount brands of their own. (Altria's 2008 spinoff of its international unit, Philip Morris International, sparked increased competition for Vector by pushing Altria into the discount niche.) Indeed, discount cigarettes have been the fastest-growing segment of the US tobacco industry for more than a decade. (Liggett held about 9% of the overall discount market segment in 2009.)
Being small, relative to its heavyweight competitors, has its benefits. Under the Master Settlement Agreement (MSA) reached in 1998, the three largest cigarette makers must make settlement payment to 46 US states based on how many cigarettes they sell annually. Smaller companies, such as Liggett, need only make payments if their market share exceeds 1.65% of the US cigarette market. In 2009 Liggett and Vector Tobacco accounted for about 2.7% of the total cigarettes shipped in the US. Because it exceeded the threshold, it paid about $45.5 million under the MSA.
Liggett's "Partner Brands" program makes and supplies private-label brand cigarettes to convenience stores operators. It makes MONTEGO-brand discount cigarettes for Circle K Stores, SILVER EAGLE cigarettes for Sunoco, and BRONSON cigarettes for QuikTrip.
Chairman and former CEO Bennett LeBow owns about 12% of Vector, while investor Carl Icahn and his associates own about 19%. Phillip Frost owns about 12% of the shares.