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A New Kind of Marlboro Man


In late January, shortly after Louis C. Camilleri was chosen as Philip Morris Cos.' (MO) next CEO, he stood up to address a standing-room-only crowd at its Park Avenue auditorium about his new job. Despite his 25 years at the company, Camilleri was a mystery to many in the room and thousands more watching by satellite telecast. Overshadowing him was the blustery and beloved executive he was replacing, Geoffrey C. Bible. Yet the man who is taking over the $73 billion food and cigarette behemoth has played a pivotal role in some of its toughest victories: As chief financial officer, Camilleri was one of the earliest proponents of the $19 billion purchase of Nabisco in 2000 and the subsequent public offering of part of its cash cow, Kraft Foods Inc. And he led the team that negotiated a settlement with attorneys general in 46 states over medical costs posed by smokers.

In all of these things, Camilleri, 47, has demonstrated a very different approach from that of his predecessor. A frequently confrontational Aussie, Bible often posed with a lit cigarette for the Philip Morris annual report. Camilleri, who declined to be interviewed, has a far quieter style. Insiders and investors believe he is the right man for an era that will rely more on diplomacy.

Camilleri must prove that as chief executive he can balance the dual roles inherent in the huge job he's taking on: that of appeasing a public that remains angry about his cigarette business, which generates 61% of Philip Morris' operating earnings, while continuing the company's 40-year record of at least 15% growth in annual per-share earnings. At the Apr. 25 annual meeting where he'll officially get his new title--and at which Philip Morris plans to change its name to Altria Group Inc.--Camilleri no doubt will hear audience members demanding that Bible respond to the tragic tales of their family members who smoked and died of cancer. Philip Morris faces 1,500 pending lawsuits in the U.S. and growing antitobacco activism around the world. "It's a tough job," says Jane Evans, CEO of Opnix Inc., a technology company, and a member of the Philip Morris board since 1981. "But Louis is probably one of the most brilliant individuals I have ever met."

One of Camilleri's biggest challenges is to take advantage of a lull in the tobacco wars. Last year, Philip Morris paid $5.9 billion as part of its 1998 master settlement with the states. The deal will continue to cost the company billions in future years, but it also greatly diminished the litigation concerns that hung over the stock in the 1990s. Philip Morris wants protection at the federal level and has lobbied for Food & Drug Administration regulation of tobacco. That could pave the way for "safer" cigarettes that it has in the works.

Despite the huge costs of its deal with the states, the company has thrived. Bible leaves behind a U.S. tobacco business that had 26% revenue growth over the past two years, to $24.8 billion. The agreement gives Philip Morris an advantage because its premium-cigarette customers are less sensitive to the resulting big price hikes. Overall, Philip Morris had operating income of $15.7 billion last year, up 6%, on revenues of $72.9 billion, up 15%.

But there's still a big hammer hanging over Camilleri's head: future liabilities. Philip Morris has shelled out $500 million in order to appeal the Engel class action, in which a Florida jury awarded $74 billion in punitive damages against the company. Individual suits loom, too. Wall Street doesn't consider them to be a significant threat--analysts point out that Philip Morris still hasn't directly paid a dime on any of the myriad individual lawsuits it is appealing. But more pop up each year, and if punitive damages are eventually upheld, the impact would be catastrophic.

To squeeze more growth out of his portfolio, Camilleri will have to lean heavily on acquisitions, especially overseas. Kraft trails competitors such as Nestl? and Unilever in foreign markets--only 9% of its sales come from developing countries. That's why it has been buying small food companies like the Stollwerck confectionary in Russia and Poland, which helped boost Kraft's chocolate sales in Central and Eastern Europe to more than 11% annually. Prudential Securities Inc. analyst Robert T. Campagnino expects to see Camilleri focus on more international food deals worth $100 million to $300 million. Nancy J. De Lisi, whom Camilleri appointed to a new mergers-and-acquisitions post, has no doubt that he will match Philip Morris' historical growth. "Sit down, put on your seat belt, and watch," she says.

Camilleri's international experience should be a big asset. Born in Alexandria, Egypt, to Maltese parents, he left that country at age five after the Suez crisis and the nationalization of all foreign assets. His father lost his iron- and steel-trading business when he fled, but still sent Louis to boarding school in Britain and later to the University of Lausanne in Switzerland. It was in that country that he launched his career at Philip Morris, two years after graduating with a degree in economics. Mattel Inc. CEO Robert A. Eckert, former chief of Kraft, remembers watching Camilleri at a retirement party four years ago effortlessly floating among the heads of the company's European operations, speaking different languages, familiar with each executive's business issues. "I remember going `Whoa!"' Eckert says.

The new CEO's style is much less outwardly boisterous than was Bible's. Still, he has developed a fierce personal loyalty inside the company. Steven C. Parrish, senior vice-president for corporate affairs, tells how in 1995 he and Camilleri were preparing to address the board. Parrish gave a trial speech in front of peers that included a slide of Europe. Only after he went back to his seat did Camilleri come over and whisper: "Your map is wrong." Parrish had included Czechoslovakia, which had dissolved into the Czech Republic and Slovakia. "It would have been so easy for him to show off and correct me in front of everyone," recalls Parrish, "but that's not the way Louis does things."

He knew the region well: As head of Eastern European operations in the early '90s, Camilleri secured huge market shares. But that push also triggered a backlash that has many countries talking about limiting tobacco ads. As CEO, Camilleri will have to tread carefully. The last thing Philip Morris needs now is a flashy attention-grabber. By Nanette Byrnes in New York, with Julie Forster in Chicago and Christopher Condon in Budapest


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