CORPORATIONS: Two Men on a Horse

Two of the men who know tobacco best—Philip Morris’ Board Chairman Al Lyon, 67, and Benson & Hedges’ President Joseph Cullman Jr., 71—have the same hobby: horseback riding. Last week they decided to ride the same horse, i.e., merge their fast-growing companies. The new company will keep the Philip Morris name and officers, absorb Cullman as chairman of the executive committee, his son Joseph III as a vice president. But the Cullmans will continue to run Benson & Hedges as a separate division.

Under the merger, which stockholders of both companies must still approve, Philip Morris gets Parliament cigarettes, and thus a sizable chunk of the fast-growing filter-tip market. For the popularity of his filtered cigarettes, Cullman is cashing in handsomely. His share-for-share swap of stock with Philip Morris will place a value of approximately $22 million on the company, whose control (55%) was bought for only $1,000,000 twelve years ago by the Cullman family’s investment trust, Tobacco & Allied Stocks, Inc. Since Cullman, his brother Howard, chairman of New York’s Port Authority, and their relatives own more than 50% of the trust, their net capital gain is in excess of $5,000,000.

Both the key men in the merger have spent most of their lives in tobacco. British-born Alfred Emanuel Lyon has been selling cigarettes ever since he arrived in New York in 1912 and asked Tobacco Products Corp., the makers of Melachrinos, for a job. “We don’t need anybody,” he was told. “Oh,” said Lyon, “then you’re selling all the Melachrinos you want?” He got the job, and by the time his employers launched Philip Morris cigarettes in 1933 he was a star salesman.

Tobacco has been a tradition in the Cullman family since Joe’s German-born grandfather began making cigars in the 1850s. (“His cigars,” Joe’s grandmother used to say, “put more Union soldiers out of action than all the Confederate bullets.”) His family had long owned Tobacco & Allied Stocks, with various tobacco investments, but never rolled its own cigarettes until the family trust bought Benson & Hedges in 1941.

Both Al Lyon and Joe Cullman have achieved phenomenal growth for their companies with opposite selling techniques. Lyon used plenty of noise in his ads (little Johnny’s annoyingly unforgettable cry) and bold slogans (“No Cigarette Hangover”). Cullman was content to push Parliaments with dignified understatements (“removes much of the tar—keeps all loose bits of tobacco from reaching your lips”) and snob appeal. Both approaches worked. Since Lyon became president in 1945 he has pushed Philip Morris sales from $185 million to $315 million last year, its profits from $6,800,000 after taxes to $11.3 million. Since 1941, Cullman has boosted Parliament’s sales from 95 million cigarettes to 1.7 billion, and has seen Benson & Hedges common stock rise from approximately $30 a share to $50 (after a four-for-one split) in the same period. On $20 million in sales Benson & Hedges last year made $894,612 profit after taxes.