Hard to Kill

By: Seth Lubove, Forbes Magazine, 07/05/99

LOCAL LORE HAS IT that Don Aronow showed up in Miami in the early 1960s after making a small fortune in real estate in the Northeast. After getting hooked on speedboat racing, Aronow figured he could design a better boat than the then-dominant Bertrams. The details of his outsized life may or may not be true--as recounted so far in three books--but it is a fact that Aronow created one of the greatest boat-building dynasties ever, with brands such as Formula, Donzi, Magnum Marine and his most notorious of all, Cigarette speedboats.

Aronow was bumped off by a competing boatyard owner in 1987, but the stories swirling around his shop, Cigarette Racing Team Inc., continue to entertain. Now the public may soon have a chance to buy a piece of the storied company. Buckle your seat belt.

As a story stock, it should be an easy sell. Aronow named the Cigarettes after a boat fabled for hijacking rum-runners in the Atlantic during Prohibition. Aronow hijacked the name for himself and designed versions that could ultimately slice through choppy seas at speeds over 100 miles an hour. In their recent form, they have become famous as the toy of choice for such notables as George Bush Sr., Roger Penske, Charles Keating and, at one point, drug smugglers. The company just finished an order of 11 Cigarettes for the Sultan of Brunei's cousin at a cost of as much as $1 million each, some with 3,000 horsepower under the hood.

Just as Aronow was a colorful character, so, too, are the folks behind the company's intended public offering. There's Adam Schild, chief operating officer and front man for a mysterious partnership that owns the largest stake in the company. Schild, 29, learned some of his business skills as a "stockbroker-in-training" at the odious Stratton Oakmont bucket shop in the early 1990s. There's Jeffrey Friedman, chief executive of Associated Estates Realty, an under performing Cleveland real estate investment trust, who's converting much of his $5.7 million of Cigarette debt into equity in the deal. Friedman, who had originally bought Cigarette from the slippery Integrated Resources in 1984, has been pilloried recently in Cleveland's Plain Dealer for his management of several roach-infested housing projects. And there's 10% owner Glenn Laken, a tough-talking Chicago commodities trader. Laken distinguished himself in 1997 by getting fined for punching out another trader in the pit of the Chicago Mercantile Exchange.

Schild, who was the chief executive of something called Cellular Telecommunications & Technologies Inc. for all of one press release in 1995, says he was attracted to the deal by the licensing opportunities of the Cigarette name. In fact, though there are several other makers of muscle boats, Cigarette has become the generic term for a speedboat, something that isn't lost on Schild. He's planning cafes, swimsuit calendars, a videogame and Polo Ralph Lauren-like boutiques featuring Cigarette clothing. In licensing, "the sky's the limit," bellows Laken.

Schild doesn't have any choice but to look for new revenue streams. "When we got involved, it was a mess," he admits. "It should have filed bankruptcy. It was insolvent." A document filed in May for the public offering (actually a reverse merger into the foundering, publicly held company that makes some of Cigarette's engines) reveals a company that's in technical default with its primary lender (Friedman), is questionable as a going concern and has lost $8.3 million since 1994, when Friedman sold the company to Robert Torter, a small-time dealster and Cigarette fanatic. After defaulting on Friedman's note, Torter was last reported to have been caught attempting to sneak his girlfriend--who was wanted for smuggling Rolex watches--out of a Miami condo in the trunk of his car.

"I have more money invested in this than I've ever gotten out of it," sighs Friedman. Unless, of course, the public bails him out.

Then, just when the company seemed to be getting back on track last year, management discovered $352,000 missing. Cigarette's comptroller, Mark Hernandez, pleaded guilty to looting the company. "Unfortunately, he was given probation," Schild grumbles.

Surprisingly, despite the turmoil and management neglect, Cigarette boats haven't lost any of their competitive edge or popularity. Manufactured in the same north Miami location where Aronow founded the company, and still using Aronow's deep-V-shaped hull design from 30 years ago, the boats have taken first place in several recent races for production powerboats. A growing backlog means new orders take as much as six months to fill, for boats with barely any creature comforts that nonetheless start at $200,000.

"If I ran my business the way Cigarette has been run, I'd be out of business," marvels Philip Lipschutz, a top Miami dealer for Cigarette who performed stunts in the boats for the Miami Vice TV series. "But the name is impossible to kill."