Philip Morris Set to Name Insider Camilleri to Succeed Bible as CEO
By GORDON FAIRCLOUGH
Staff Reporter of THE WALL STREET JOURNAL
NEW YORK -- The smoke is about to clear on who will next lead Philip Morris Cos. At a meeting Wednesday in the company's Park Avenue headquarters, directors are expected to choose Louis C. Camilleri, the company's soft-spoken chief financial officer, to succeed Geoffrey C. Bible as chief executive officer of the tobacco-and-food company.
According to people close to the situation, the 47-year-old Mr. Camilleri is to be formally elected CEO in late April. Mr. Bible will remain chairman until he retires in August, these people say. Mr. Camilleri declined to comment.
Mr. Camilleri will inherit a very different company -- in a vastly changed world -- from the one Mr. Bible took over in 1994. Three years after the tobacco industry's landmark $206 billion settlement with state governments, Philip Morris is on a roll. Though beset by litigation and hounded by critics, the company has managed to boost profits and gain market share at the expense of its competitors.
Mr. Camilleri will be one of the youngest men ever appointed to the top job at Philip Morris -- the maker of Marlboro cigarettes, Kraft foods, Nabisco cookies and Miller beer -- and one of the youngest executives to lead such a large multinational company. A chain-smoker of Marlboro Ultralights, Mr. Camilleri has worked as finance chief since 1996. He has experience in the company's international tobacco and food businesses and has developed a reputation as a diplomat.
That's a contrast to the more pugnacious Mr. Bible and the man sources say was Mr. Camilleri's top inside rival for the CEO slot, Michael E. Szymanczyk, the head of the U.S. tobacco business. Mr. Szymanczyk, a 6-foot-8, hard-driving salesman, couldn't be reached to comment.
Mr. Camilleri has 18 years to go before reaching the company's retirement age of 65. What he does during his tenure will affect not just Philip Morris shareholders. Given the nature of the company's products, his decisions could have a major impact -- for good or ill -- on public health in the U.S. and around the globe.
As CEO, Mr. Camilleri's top priorities will be to expand Philip Morris's overseas operations through a combination of internal growth and acquisitions, according to a top Philip Morris executive familiar with Mr. Camilleri's thinking. Mr. Camilleri also plans to make the company a better corporate citizen, in part "by supporting tobacco regulation in the U.S. and around the world," something that lends more stability and predictability to the business, this executive says.
Those are qualities notable for their absence in recent years. In the mid-1990s, Philip Morris, the nation's largest cigarette maker, and the country's other tobacco companies seemed to be on their knees. The Food and Drug Administration was trying to regulate cigarettes as drug-delivery devices. Congress was investigating the industry, and state attorneys general were suing, aided by former employees blowing the whistle on misconduct. Then came a flood of private lawsuits brought by sick smokers and others.
The tobacco companies entered legal settlements with all 50 states, agreeing to pay $246 billion -- roughly half from Philip Morris -- over 25 years and to keep forking over money as long as they stay in business. The companies also agreed to temper their marketing practices: No more billboards. No more cartoons in ads. No more T-shirts or caps emblazoned with cigarette brand names.
But Philip Morris's longstanding dominance of the industry has helped it weather the storm better than any competitor. The company's total share of the U.S. cigarette market has climbed above 50%, up 12% since 1994, while archrival R.J. Reynolds Tobacco Holdings Inc. is slipping. More than one in three of the cigarettes sold in the U.S. is now a Marlboro; market share of the company's flagship brand increased to 37.7% in 2000 from 28.1% in 1994. Tobacco profits are growing, and the company has yet to pay a dime to any of the individual smokers suing the company.
In a series of transactions engineered in part by Mr. Camilleri, Philip Morris acquired cookie and cracker maker Nabisco Holdings Corp. in 2000, combined it with Philip Morris's powerhouse Kraft unit to create the nation's largest food company and then made a pile of money for Philip Morris by taking part of it public last year. The two deals burnished Mr. Camilleri's reputation with Wall Street and the board.
And given the Enron Corp. accounting scandal and the horrors of Sept. 11, Philip Morris has moved out of the media spotlight, making it seem less like Public Enemy No. 1. Still, "the public hasn't changed its mind about these guys," says Matthew L. Myers, president of the Washington-based Campaign for Tobacco-Free Kids, adding that, based on opinion polls, the public continues to view tobacco companies unfavorably. Philip Morris plans to change its name to Altria Group Inc., a move that could further distance it from its tobacco-centered past.
As it turns out, the massive legal settlements with the states have given Philip Morris a leg up on competitors. Price increases imposed to fund the settlements have affected Philip Morris less, since its flagship Marlboro brand attracts younger, less-price-sensitive smokers than rival cigarettes. And because Marlboro is so well-known and so widely smoked, restrictions on advertising also have had less impact than on makers of lesser-known brands. Philip Morris's profit per thousand cigarettes has jumped 37% since 1997, the year before the settlement, according to Martin Feldman, a tobacco analyst at Salomon Smith Barney in New York. Total operating profit from U.S. cigarette sales has grown 22% over the same time period, Mr. Feldman says.
Mr. Camilleri helped devise the financial architecture of the industry's deal with the states. During the settlement negotiations, he was called in to explain to the attorneys general the concept of "price elasticity," which is different for cigarettes than for many other goods. Because smokers are hooked on cigarettes, they are less responsive to price increases. That means that at least in the short to medium term, profits can rise even as consumption declines.
During Mr. Bible's tenure, "the attacks on the tobacco industry reached an unprecedented scale. But the company has emerged stronger than before," says Mr. Feldman.
Now, Mr. Camilleri will have to navigate a thicket of thorny legal and regulatory issues at home and abroad, including concerns about genetically modified foods, as well as continuing antitobacco litigation. The U.S. Department of Justice is pursuing a racketeering case against Philip Morris and other tobacco companies. The industry is also struggling to contain a growing threat from individual lawsuits in California, where Philip Morris has already lost three consecutive trials. The most recent ended in a $3 billion verdict against the company, later reduced by a judge to $100 million. Philip Morris is appealing this verdict, as well as a $73.96 billion judgment in the so-called Engle class-action case in Florida. If a verdict this large ever sticks, it could conceivably bankrupt the company.
Another big question is whether Mr. Camilleri will use his financial skills to reshape the company and unlock the value of its assets. Despite its fat profits and a 140% increase in the stock price in two years, the legal cloud means that the stock continues to trade at a depressed price-to-earnings multiple compared to even mediocre-performing food companies. Mr. Camilleri could split the food and tobacco businesses, diversify further or stay the course. Last year's IPO of 15% of Kraft has paved the way for a potential tax-free spinoff of all of the food business to Philip Morris shareholders, though some legal hurdles need to be removed.
Chief among the public-policy issues the company confronts is FDA regulation of the tobacco industry. In a reversal, Philip Morris is lobbying Congress to give the agency jurisdiction over cigarettes -- up to a point. One reason is that the company believes it is close to devising a potentially less hazardous cigarette, so it is keen to have federal regulations in place governing the development and marketing of such products.
Philip Morris officials have met with senators and members of the House of Representatives and sent a position paper to the White House. They have sent out feelers to public-health experts. The Philip Morris executive familiar with Mr. Camilleri's thinking says that Mr. Camilleri has been involved in the company's decisions on FDA regulation and that he is "on board with where we are going." There are several bills now before Congress, and hearings could be held this spring.
Antitobacco groups doubt the sincerity of Philip Morris's overtures and say the company's proposals wouldn't give the FDA enough power to regulate the content of cigarettes. Rival tobacco companies, meanwhile, think that Philip Morris is going too far and that its plans are meant to give it a competitive advantage.
Philip Morris also faces increasing pressure from governments and tobacco-control activists around the world. The European Union, Brazil, Canada and Thailand have placed ever tougher restrictions on cigarette marketing. More than 150 countries, under the auspices of the World Health Organization, are negotiating an international treaty to curb tobacco use. Delegates are debating advertising restrictions, limits on smoking in public places, licensing requirements for tobacco retailers and other potentially nettlesome measures for a company that hopes to get most of its future growth abroad.
Mr. Camilleri has campaigned against restrictions in the past. In a letter to Poland's agriculture minister, written in 1991 when Mr. Camilleri was vice president for Philip Morris's operations in Eastern Europe, he said that proposed ad bans "would infringe on the consumer's right to relevant product information and deprive both the government and media from important revenue sources." Mr. Camilleri also wrote: "The proposals concerning public and workplace smoking seem unnecessarily severe and restrictive."
But he and the company are singing a different tune these days, saying they support "reasonable" restrictions on cigarette sales and would back a global treaty on the matter -- a stance that has put them at odds with the world's other large tobacco companies.
Mr. Camilleri's colleagues say he is well-suited to deal with international challenges. Born in Egypt to parents from the Mediterranean island of Malta, he went to boarding school in England and graduated from the University of Lausanne in Switzerland. A British citizen, he is fluent in English, French and Italian and speaks a smattering of other languages.
He has spent nearly his entire career at Philip Morris, having joined the company in Switzerland in 1978. He helped lead the company's charge into Eastern Europe after the fall of the Berlin Wall, opening a new, fast-growing market. He also served as president of the company's international food operations before becoming CFO in 1996.
He has a reputation for wielding instant recall of even the most arcane facts and figures. In one conference call with Wall Street analysts, he launched into an off-the-cuff discussion of the ins and outs of the German vending-machine business and their implications for Philip Morris sales in the country. "There's not a number he doesn't know," says one investment banker who has worked closely with him.
Mr. Bible has long sought Mr. Camilleri out for opinions and advice, say executives who know both men. The two executives frequently dine together and discuss strategy.
The effort to pick a new CEO started in earnest more than a year ago, as Mr. Bible neared the company's retirement age of 65. The five Philip Morris directors charged with finding a new leader summoned the company's highest-ranking executives one by one to meet with them.
The board also approached Richard Parsons, a long-serving director who had recently stepped down. But Mr. Parsons, who recently was named CEO-designate of AOL Time Warner Inc., turned down the overture.
After that, a person familiar with the matter says, the directors turned to Mr. Camilleri. By late last year, this person says, it became clear to Mr. Camilleri that he was the likely winner.
One key question is what will happen to Steven C. Parrish, a senior vice president who has been leading the company's push for FDA regulation and is in charge of corporate affairs. Mr. Parrish has established important ties to politicians and reached out to critics in the public-health community. "Steve is fulfilling a role that is critical for the company," says Salomon Smith Barney's Mr. Feldman. Mr. Parrish, who is close to Mr. Camilleri, is expected to remain at the company. |
