Tobacco Documents Online

;rstner's arrival, the collapse of the junk- ,nd market nearlv (lid in RJR. KKR. .:cd with the possibility of bankruptcy for J R, pumped in hu111e sums of additional nital and took the rompany public in nril 1991. wav ahead o1schedule. The ma- :uvering broueht in monev that RJR has -Cd to cut its crippline S29 billion debt by ,ore than half. Yet it also means that with i°b of the common stock in public hands, rerstner, the would-be lone-term manag- r. now finds himself answerable to Joe and udv Shareholder and antsv institutional n-estors as well as "patient" Henry Kravis. G ERSTNFR'S GRIT eot tested recently %~ hen he hosted a presen- tation to security analysts in Man- hattan, a role he never expected , pla'yso-sootl. I he ;Vall Streeters asked: Why don't you pay a dividend'?" "Why not lump some of your marketing outlays to he bottom line and lift the stock price?" Implicit in such questions was skepticism ~hat Gerstner-or auwone-can revive RJR _IS demand for ciearettes in America ineluc- iably declines. R.J. Reynolds, the compa- nv's U.S. cigarette unit, accounts for 39% of revenues but fully 58% of operating in- come. And if profits can't grow, the ana- Ivsts wanted to know, shouldn't the cash tlow from the business be returned to ;hareholders now'? Gerstner shot back, again and again. "No. We don't run the ,~ompany that wav." Asking 500.000 owners to hold their horses would not he so dubious a proposi- tion if the stock were doine well. But RJR, which sold for $11.'_'5 in the public offering, lately has been stuck below $9, and dipped to $8.25 in Januaty when the EPA identi- tied secondhand tobacco smoke as a cause of lung cancer. AVhile RJR's net profits more than doubled to an estimated $800 million in 1992, the improvement comes mostly from reductions in interest expense; operating profits are lousy. Gerstner blames the recession. "If the Eighties was the era of 'Shop till you drop,' the Nineties is the era of 'Drop shopping,' " he told the analysts, referring to the largest pullback in consumer spending on nondu- rable products since the mid-1970s. It was no longer possible, he observed, to boost profits simply by raising prices. Profit growth in RJR's U.S. food business has stagnated, and Reynolds has been even harder hit: Its earnings have fallen for two years running. And while RJR's estimated REPORTER ASSOCIAfP. JuIUI Labate R.J. Reynolds boss Jim Johnston is under pressure to drag more money out of cigarettes while ... 1992 operating income of $2.1 billion on S6.2 billion in U.S. cigarette sales sounds like a bounty, it is not, considering the his- torical wealth of the tobacco trade. In plan- ning the buyout. KKR anticipated $2.9 billion in U.S. cigarette profits in 1992. The difficulties raise an intriguing issue: How long should a manager keep plowing mon- ey into a grand rebuilding scheme when profits lag, when consumers do not re- spond, when the reward seems out of sight? Gerstner did not want to answer that or ... John Greeniaus, the maverick at Nabisco, is trying to shape up RJR's motley U.S. food business.

• COMING SOON: BARBARIANS ON TV You thought Barbarians at the Gate was a roller-coaster read? Hold tight for the TV-movie version of the straneer- than-fiction best-seller about the bat- tle for control of RJR Nabisco. Written by Larrv Gelbart, the creator of TV's j1l*A*S*H, the potboiler cost $7 mil- lion and will reach screens on HBO (owned by FoR- TUNE!S parent, Time Warner) March 20. Actor James Gar- ner plays wheeler- dealer CEO F. Ross Johnson with a garru- lousness that seems to ooze from a deep well of greed. "Every penny you think I'm pissing away here comes back to us dressed like a nickel," says the movie John- son. Ross the Boss rollicks in the fast lane: like his real-life counterpart, he even uses a corporate jet to transport his pooch. Henry Kravis, Johnson's foe, re- mains hushed, com- posed, and emotion- ally efficient as the bidding war rages. He never wavers in his belief that an LBO \N,ill eliminate RJR's executive ex- cesses and free bil- lions in profits for investors: "Debt can be an asset," he whis- pers. "Debt tightens a company." Kravis is played by Jonathan Pryce, the British ac- tor who won a Tony for his performance in the Broadway hit Miss Saigon. than his leggy, fashion designer wife. Car- olyne Roehm (played by Rita Wilson). A warning to James ID. Robinson III. the soon-to-be-dethroned CEO at American Express and Johnson's ally in the LBO bat- tle: Steel yourself for a skewering. In one of many embellishments of the truth, a shot in the charge- card card king's home ~ shows the maid iron- 8 ine $20 bills. Cut James Garner as F. Ross Johnson Joanna Cassidy as Linda Robinson Fred Dalton Thompson as Jim Robinson Jonathan Pryce as Henry Kravis The real Kravis. who hails from Oklaho- ma and says he stands five-foot-eight, has not seen the film but exclaims, "It sounds terrific. I told [producer] Ray Stark that he is portraying me exactly right-as a guy six-foot-three with an English accent." On celluloid. Kravis gets the stature. that his real-world billions can't buy: He is taller to the master bed- room, where Robin- son (Fred Dalton Thompson) is duding up for a bigwigs' square dance-as Su- perman. Beside him throughout the film is superflak wife Lin- da (Joanna Cassidy), ~ who handled public relations for John- son's buyout group and is portrayed as a sugary strawberry blonde. By and large, oth- er characters in the RJR saga dread see- ing their reel perso- nas. John Greeniaus. head of Nabisco, complains, "The av- erage worker, the guy in a Detroit auto plant, is going to sav, 'Oh God, look at those business peo- ple with their egotis- tical, money-hungry, screw-the-l ittle-guy attitudes.' " One ex- ception is private investor Dan Lufkin. an unsuccessful third- party bidder for RJR. "Everyone should care about this story," he says. "Today's turnover in corporate America, the board- room battle at General Motors, the in- vestor attacks on Sears-all emanate from LBO-type thinking by people like Henry Kravis, who logically target mis- managed companies." Lufkin may have another reason for wanting America to watch: He makes a cameo appearance as himself. .PERFORMANCE he admits, is rich in marketing lessons. Upon his arrival, Gerstner made bold moves to try to turn Reynolds around. Step one was to snuff plans for launching Pre- mier, RJR's "smokeless" cigarette. Ross Johnson's pet project had burned up $400 million in R&D-even as consumers. in tests, judged the product ghastly. Step two was to abolish what's called trade loading. This was Reynolds's prac- tice of inflating quarterly results b} shipping extra cigarettes to customers' al- ready overstocked warehouses. Quittinc required RJR to cut production while cus- tomers ran down excess inventories; that cost the company $360 million in 198~ pretax earnings. The long-term benefits: fresher cigarettes for consumers and thL freeing up of an additional $50 million irr cash each year. Step three was to reverse the old stratet of churning out billions of low-priced, low- profit smokes. RJR had introduced bargair brands like Doral and Century in hopes o stemming the erosion of its market share They made Reynolds king of the industry'~ discount segment but diverted customer• from RJR's most profitable products. Say Gerstner, who has shunned price cuttin: ever since his days pitching premiun charge cards at American Express: "Dis counting is too easy. I don't need marketin; people for that." Gerstner has relied on James Johnston. . former Reynolds marketer he recruited t, run the tobacco operation, to find ways t, boost demand for RJR's premium smoke- Johnston organized a separate team of eni ployees from research, production. an other areas to work on each brand. Th Winston team concocted more than 10 improvements, including more puffs pc cigarette and a foil-like wrapping aroun the pack that prevents staleness better tha: cellophane. Last May, RJR launched Wir ston Select, which uses milder tobacco an is meant to lure Marlboro smokers fror Philip Morris. Salem got repackaged. Th Camel team touted its new mascot. Jo Camel, and launched a fat version. Camc Wides. aimed at macho smokers. D ESPITE the efforts, Winston and Salem's unit volumes an market shares have continued t fall. Meanwhile, the Joe Cam( campaign succeeded so well that it set off furor. Johnston denies antismoker charges that the cartoon character. a dat per dromedary who wears a tuxedo and 1_'_ FORTUNE FEBRUARY8.199. 51195 9057

0 CORPORATE PERFORMANCE T E NEW SIEGE AT RJR NABISCO Jack Ron Don Charles Becki Rick Dave Ann Steve E Call it I3arbarians at the Gate, The Sequel. RJR Nabisco, the object of history's largest leveraged buyout, is on the defensive again-this time against ordinary shareholders.  by Patricia Sellers W HEN Louis Gerstner Jr. swapped the presidency of American Express for the top job at RJR Nabisco, he never dreamed events would develop as they have. Henry Kravis chose Gerstner as CEO in 1989 after taking over the maker of Win- ston ciearettes and Oreo cookies in histo- ry's largest leveraged buyout. As readers of the best-seller Barbarians at the Gate know. Kravis was one of a horde of would-be ac- quirers who vied savagely to capture RJR. Gerstner recalls that Kravis recruited him with a promise the very opposite of barbar- ic: "We want to build this company, Lou. We want you to create value. Consider us long-term investors." Kravis and Gerstner agreed that RJR's earlier bosses-including CEO F. Ross Johnson, whom Kravis sent packing-had operated with a nearsightedness that hurt the business. Brands had been starved of capital. acquisitions forgone. and product shipments arranged so that RJR could please Wall Street with a perfectly predict- able earnings increase each quarter. Kravis. who is now 49, assured Gerstner, 50, that Kravis's firm, Kohlberg Kravis Roberts. represented "patient capital" and that Gerstner could run RJR as a private com- pany, sheltered from the demands of the stock market. for five years. Gerstner, in turn, devised a plan of heavy investment to resuscitate RJR's premium cigarette brands, realize the potential of the food business, and energize international opera- tions. His goal: a rejuvenated RJR that would be ready for a triumphal return tc the New York Stock Exchange in 1994. Re- members Gerstner: "Poof! Like a beautiful flower bursting from the ground, we were going to become a public company." Oh, how the best-laid plans of buyout artists can end up in ashes. Within a year of Can CEO Lou Gerstner deliver higher profits? 118 F O R T U N E FEBRUARY 8. 1993 51195 9054 PHOTOGRAPHS BY JOHN ABBOTI

, , I man has to make up lost ground: RJR was forccd to srll its Euro- pean and Asian tood operations in 1989 to help rcduce debt, and today the food business abroad s ccounts for only y 70 million a ~ ear in sales, mostiv in Latin America. He aims to increase profits (some SIU0 million in 1992) by more than ?0% annu- uIly, partly throuOh acquisitions. and says he is cvaiuatine 15 pos- sible deals. In international tobacco, Gerstner envisions kine-size growth. Reynolds sells about $3 billion a year abroad. vs. $13.2 hillion for Phiiip Morris. With demand for mild :\mcrican- The heat the CEO feels will only in- crease; by next year, some of itcouid come from within RJR. blend cigarettes risim, 5~',~ annuallv outside the U.S. RJR hopes to match strides with the Marlboro man in taking market share from local producers. RJR only recentiv arrived in a position to indulge Gerstncr•s appetite for growth abroad. Until just over a year ago, the com- pany's load of junk debt had caused banks to turn down financing requests. RJR made a slew of deals as soon as additional stock offerings restored it to investment grade. It hought cigarette factories in Turkey, Po- land, and Hungary. and is setting up joint ventures in Spain. the Dominican Repub- lic, Russia. and Ukraine. pansion plans may be, they don't A AMI3ITIOUS though Gerstner's ex- come anvwhere near sopping up the company's gargantuan cash tlow. After operating expenses, interest pay- ments, and taxes in 1992. savs CFO von der Hevden. the business had $1.5 billion left over. RJR will use that money to retire or refinance its remaining $4 billion of LBC) debt, which carries an annual interest rate of some 15%. Cuts in interest expense should help boost earnings per share 25% in both 1993 and 1994. For that reason, security ana- Ivsts such as Emanuel Goldman of Paine Webber rate RJR one of the best bargains among packaged goods industry stocks. All the same, the common stock is still stuck below what most people paid for it. For the price to rise, contends analyst Goldman, Wall Street must be convinced that tobacco earnings will grow. Alterna- tively, RJR can up the stock price by re- turning cash to the shareholders through dividends or stock huvbacks-something Gerstner keeps resisting. He insists: "The stock price is derivative of per- formance in the marketplace and not something you act on with financial engineering." The heat the CEO feels is only going to increase: by next year, some of it may emanate from within RJR. The compa- ny's 450 most senior managers were required to buy RJR shares at about 55 each when they joined the Gerstner bri- gade after the LBO, so an exec- ) utive with an annual salary of ( $125,000 owns some $400.000 ~ worth of stock. Most of those shares, along with generous stock options. will vest in April 1994. Ownership can motivate , even the most farsighted executive to short- en his focus. Gerstner, who has put in $6.5 million of hisown, assured the analysts: "We care about the stock price. We're not run- . ning RJR Nabisco for our grandchildren." Investors may also be encouraged to know that Kravis, while insisting he is un- equivocally pleased with Gerstner's perfor- mance, puts enormous pressure on man- agement. Consider a remarkable fact: KKR's investment in RJR represents 53% of the total amount the firm has invested in all companies it owns. Eight KKR execu- tives sit on RJR's 15-member board: the KKR brass visits RJR each month for a for- mal review: Kravis speaks with Gerstner by phone two or three times a month. Remember also that while Kravis is fam- ous as an acquirer, he gets his biggest kicks from cashing out. He said in an interview for this story: "People call me up and con- gratulate me when I buy a company. I tell them. 'Don't congratulate me now. Con- gratulate me the day I sell it.' " Kravis also says he is not worried about RJR-then, with a smile, admits that he never reveals a worry. He refuses to discuss the prospects of the tobacco business, and insists, "If I had it to do the RJR Nabisco deal over again, I'd do exactly the same thing." And the outlook for the stock? Perhaps tellingly, Kravis asks, "Is 25% a good rate of return in this environment?" Well, Henry, KKR enjoyed returns of more than 30% during the 1980s, so answer, please. "It's a tenific rate of return!" he declares. For KKR to hit that mark by, say. Gerstner's fifth anniversary as CEO in April 1994, the stock would have to be selling for $15, al- most double where it is today. It's a good thing that Henry Kravis is a patient man.11 ihcy'rc Nmr Ion:YouRg 10. lcar~ Ihe. I~cts Of life :1 . And they want to learn from you, their parent. As a parent, you need to know that the average age for first use of drugs is twelve. Some children are using illegal drugs and alcohol much earlier. To find out how you can teach your kids about the dangers of drug abuse, call 1-800-488-DRU(3. We'll give you the information you need to make a difference. And we'll send you our free guide to resources, Fight Drug Abuse With Facts. Keep your kids off drugs. Call or write for the facts. The American Council for Drug Education 204 Monroe Street Rockville, MD 20850 ths AnHrican Council for Drug Education RE oa

1 DISTRIBUTKV, P. BROOKS A. HJipRT L. KQ(.?t41Z R. NIcPHERSON J, PIPES R. STUPKA J. TH4UIPSON, R. WEI,SZ

PE.RFORMANCE pictured with fawning women. tempts chil- dren to smoke. though Johnston admits to relishine Camcl's new young adult consum- ers. Last vear the brand's estimated unit volume increased more than 2% even as the industry's sales of premium cigarettes dropped h~'r. C:amel's s?ain, however, has been more than offset hv another problem. As RJR shifted from selling discount cigarettes, Philip Morris and England's BAT Indtts- tries. owner of Brown & Williamson Tobac- co. flooded the market with really cheap smokes. Black and white generics, so named for their plain wrapping, sell for around SI per pack at retail, half the price of CameL. By last year this cut-rate segment had ballooned to more than 10 % of indus- trv volunlc (from 0% in 1987). yet RJR re- fused to play. Instead it poured an esti- mated S2.5 billion in 1992 into marketing, mostly for its high-priced brands. This tac- tic was so out of touch with the market that many retailers removed RJR's cigarettes from their displays. With black and whites flying off the shelves, the storekeepers pre- ferred dealing with cigarette companies that oflered a complete product line. Gerstner now admits that RJR blun- dered in ignoring consumer demand: "We were fools. We were naive. As the guys playing the volume game were rolling out their discount cigarettes, guess who lost? Us." So. in 1992. RJR got down and dirty with the low-price crowd. It shipped about 18 billion black and white cigarettes-fully 13% of company volume. The moral of the cigarette storv. according to Gerstner: "The world is changing so much and so fast that if you don't modify, shape. adjust the tactics you use to implement your strategy, the strategy becomes useless." I NVESTORS. however, are still wait- ing to find out how the story actually ends: Will domestic tobacco profits rise in 1993? That was the first ques- tion the analysts posed to Gerstner in No- vember. He replied bluntly: "We don't know. If the industry can raise prices and avoid chasing volume, we'll grow our prof- its." For now. the industry seems to be do- ing just that. Reynolds and Philip Morris each increased prices on cheap cigarettes last fall, and their rivals followed. Gerstner hasn't given up on his premium brands, but he's more realistic. This year. RJR will increase the budget for marketing Camel but will delay new ad campaigns for Winston and Salem until smokers show ROSS JOHNSON: WHERE IS HE NOW? You can't keep a rich man down. ®Aced out of control of RJR Na•. bisco in 1988, CEO F. Ross Johnson walked away with $56 million. In 1991 he teamed with conglomerateur Da- vid Mahoney and a partner to pay $6 million for 38% of Bionaire, a La• chine, Quebec, maker of machines to filter smoke-that's right, cigarette smoke-from indoor air. Bionaire earned $1.9 million on $54.4 million in 1992 sales. Peanuts. you say? Chairman Johnson, 61, has packed Bionaire with ex-RJR big- wigs and its "working board" with cronies like hockey great Bobby Orr. Some who know Johnson think he'll use the company to acquire bigger businesses. Investors seem to believe that too. Bionaire's stock, which sold for $1.63 (Canadian) a share when Johnson arrived, recently traded at $3.50-a 107% annual return. a willingness to pay more for their habit. Miserly consumers pinched RJR's North American food business as well. Nabisco Foods, America's No. 1 cookie and cracker maker, boasts enviable competitive advan- tages, such as a 43% share of the $6-billion- a-year market and the industry's best sales force, according to surveys of retailers by the consulting firm Neo Inc. In the first three post-LBO years. President John Greeniaus improved operating earnings 20% annually by paring expenses and serv- ing up teeny versions of best-selling prod- ucts: Mini Oreos and Mini Chips Ahoy! cookies and Ritz Bits crackers, which ap- AMRMABISC01H0CD1NGSt, % 515rSTOCK PRICE I End of quaner i S lO-Public trading in stock S5: began 2/4/91 l Sou1- ~J 1988 '89 '90 '91 '92'93  RJR Nabisco stock more than doubled in price soon offer it began trading in February 1991. Weak profits in tobac- co hove de• pressed the shores since. SALES (latest four quarters) $15.6 blllion Change from year earlier Up 6.3% NET PROFIT $415.0 million'r Up 113.9% RETURN ON EQUITY 4.5% TOTAL RETURN TO INVESTORS 2/4/91-12/31/92 (annual ratel 21.2% PRICE/EARNINGS MULTIPLE 25.4 " DIVIDEND YIELD None •After extraordinary choroe. lN F 0 R T U N E fEBKUARYtS. 199, peal to mothers with small kids. But a price war with competitors like United Biscuits' Keebler unit virtually wiped out profit 2rowth last year. In October, Greeniaus froze the pay of his 8,000 salaried employ- ees, "not so much to save money," he ex- plains, "as to send a signal that perfor- mance is disappointing." RJR took a fourth-quarter pretax charge of $105 mil- lion that will, among other things, enable Greeniaus to cut 200 management jobs. Greeniaus. 47, is a curious choice to run Nabisco under Gerstner. Before the LBO he was Ross Johnson's protege and chosen successor. a master at managing for the short term. But early in the battle to buy RJR. Johnson decided he might need to sell off Nabisco. Greeniaus quickly switched sides and leaked crucial informa- tion to Kravis. Now, after four years in KKR's camp. he pledges allegiance to long- term growth: "We view our brands as stra- tegic assets. which no one ever did before. Thou must preserve the health of assets and maximize their return." Nabisco's challenge is to rationalize its nonbiscuit businesses, which account for about half of RJR's North American food sales. The mix includes Fleischmartn's mar- garine. Ortega Mexican foods. Grey Pou- pon mustard. Milk-Bone dog biscuits, and Life Savers candies. Each is strong in a cat- egory that RJR, in Gerstner's view, had ne- glected to expand: The Johnson regime had lumped most of the products into one busi- ness unit, skimping on development and al- locating advertising money mainly to keep profits smoothly growing. Greeniaus reorganized in 1992. adding marketers from PepsiCo and McKinsey and giving each brand more autonomy in marketing and R&D. To rouse Ortega from its siesta. Nabisco is forgoing profits in 1992 and 1993, doubling the marketing budget, and launching such new items as ta- cos and bean dips. In five years Greeniaus expects Ortega will quintuple annual sales, to $500 million. He also wants to expand re- cent acquisitions: Stella D'oro, a famous East Coast baker of breadsticks: New York Style Bagel Chips; and Plush Pippin, a pie- maker in Kent, Washington. Gerstner, meanwhile, has moved to capi- talize on food opportunities abroad, taking Nabisco International from Greeniaus's charge and spinning it out as a separate op- erating company. To run it, Gerstner re- cruited Richard Thoman, 48. who had become co-CEO of the travel business at American Express after Gerstner left. Tho- 51195 9058

.PERFORMANCE any other question when first approached about this story by FORTUNE. "You're catching me in the middle of my five-year plan." he said. "We're not ready to tell the world whether we made it or not." Self- contained and surprisingly shy, Gerstner started his career as a McKinsev consultant and went on to run the travel services divi- sion (charge cards, traveler's checks) at American Express. Product innovations and bie investments in marketing produced 18% annual profit growth during his de- cade at the company. Last fall, when the American Express board decided to oust CEO James D. Robinson III, it approached Gerstner about taking the job. He said no. 0 NCE he gets talking, Gerstner's re- serve disappears. Asked whether his job at RJR has been tougher than expected, the CEO bellows a big "Oh!" throwing his arms up. He says his first shock came the day he reported for work in 1989. "I'd thought there was going to be some management here. But practically no senior people were left. We had to decide, How do you run a $15 billion business?" Gerstner recruited three executive vice presidents: Karl von der Heyden, 56, from H.J. Heinz, as chief financial officer•; Law- rence Ricciardi. 52, a friend from American Express. as general counsel; and Eugene Croisant, 55, from Continental Bank, as ad- ministrative boss. None of these executives smokes cigarettes; each juggles many jobs. Croisant serves as chief of personnel, infor- mation technology, real estate, and cost cutting. 1-lis rule of thumb: Scrimp except where spending directly benefits the brands. At headquarters, four floors of a midtown Manhattan skyscraper, the hall- way floors are covered with gray-green in- dustrial carpet. Where the walls are not cheap wood stained to look like mahogany, they are covered with greenish fabric suit- able for a rec-room couch. "Even cheaper," says Croisant proudly. By eliminating excesses-30 luxury apartments, seven of 11 jets, 30 athletes on retainer. 3,000 unneeded employees- Gerstner and crew reduced total operating costs by 12%, or $550 million annually. In addition, Gerstner raised almost $6 billion by selling low-profit commodity lines and brands that did not dominate their mar- kets-Del Monte, Chun King, Baby Ruth candy bars. He has increased spending on R&D, marketing, and sales to strengthen the brands he kept. Last year alone he paid $500 million for acquisitions, mostly to give RJR's big four: von der Heyden, Crolsant, Gerstner, Ricciardi. The globe at rear Is wrapped in tobacco. RJR a foothold in underdeveloped markets like Mexico and Eastern Europe. The emphasis on growth has had a pow- erful effect on morale. In 1992. Interna- tional Survey Research (ISR), a Chicago firm, tested job satisfaction among 1.400 senior and middle managers at RJR. The scores were much higher than in a 1990 survey and exceeded average company scores on virtually every count-such as management relations, quality, and com- pensation. Says ISR head John Stanek: "RJR shows the most impressive improve- ment I've seen in 15 years, anywhere in the world." Employees rated the company under Gerstner especially high in leadership, strategy, and communication. "We've all become better managers," says Nabisco Biscuit Co. President Ellen Marram, 45, who spent 11 years working under Ross Johnson. Once a month Gerstner travels with his executive vice presidents to Nabis- co in Parsippany, New Jersey, and R.J. Reynolds in Winston-Salem. North Caroli- na, for full-day meetings with senior and middle executives. After spending 15 min- utes or so on financial results. the CEO pushes the managers to focus on strateg; posing big-picture questions like "Wh; kind of a business is this?" and "Should w be in it?" Middle managers and hour workers enjoy occasional lunches and dii ners with Gerstner. who likes to ask. "If yc had my job, what would you do to perfori better?" Says a manager who left Nabisc recently: "Lou's presence is invigoratin. For a man socially not too at ease, he is f; more hands-on than Ross was." H OWEVER earnest Gerstner commitment to the long terr his misadventures in tobaccolan show that you cannot plan whei you cannot predict. Coming into RJR. I- was aware of major problems: the 2% t 3% annual decline in the U.S. cigareti market; the fact that R.J. Reynolds. fo merly No. 1, "was being hammered I- Philip Morris." The market shares toda 43% for Philip Morris, vs. 29% for RJI Gerstner did not perceive until too latt however, that the fundamentals of tl tobacco business were changing as coi sumers switched in droves to che, brands. The tale of Gerstner's difficultic 51195 9056 120 F 0 R T U N E FEBRUARY 8. 1993