[Intl-tobacco] Philip Morris Set to Name Insider as CEO

[Robert Weissman]

U.S. BUSINESS NEWS
Philip Morris Set to Name Insider Camilleri to Succeed Bible as CEO
By GORDON FAIRCLOUGH
Staff Reporter of THE WALL STREET JOURNAL, January 30, 2002

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.

Write to Gordon Fairclough at gordon.fairclough@wsj.com
 Updated January 30, 2002 12:43 a.m. EST