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RJR Nabisco Holdings Corp.
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RJR Nabisco Holdings Corp.
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[RJR NABISCO logo]
Carol J. Makovich
Vice President
Worldwide Communications
February 6, 1996
Dear RJR Nabisco shareholder:
For your information, we have attached a copy of a profile of Steven
Goldstone, RJR Nabisco's new CEO, which ran on the Bloomberg Business Wire
late yesterday.
The article offers assessments of Mr. Goldstone by several major shareholders
and security analysts regarding his strategies and vision for the company.
Given the critical issues regarding RJR Nabisco which are under debate today,
we thought the opinions voiced in this article would be of interest to you.
/s/ Carol J. Makovich
_____________________
Carol J. Makovich
No permission has been sought or received to distribute, quote from, or refer
to published materials cited in this letter.
RJR Nabisco, Inc.
1301 Avenue of the Americas
New York, New York 10019-6013
(212) 258-5785
FAX (212) 969-9004
The following article appeared on the Bloomberg Business Wire
on February 5, 1995:
BBN 2/06 RJR Nabisco's New CEO Wins Praise as Proxy Fight
Nears (Update1)
RJR Nabisco's New CEO Wins Praise as Proxy Fight Nears (Update1)
(Rewrites. Fixes typo in second paragraph. Updates stock
activity.)
New York, Feb. 5 (Bloomberg) -- A month ago, Donald Yacktman
was worried about what the managers at RJR Nabisco Holdings Corp. were doing
to one of his largest investments.
The tobacco and food company was drowning in bad news. It had
posted its fourth straight quarter of disappointing results. At least 18
executives had changed jobs in four months -- including its chief executive.
And worse yet, the stock had dropped an average of 7 percent annually for the
past five years.
But a Jan. 3 visit by RJR's CEO, Steven Goldstone, eased his
mind. Goldstone, in his first month on the job, laid out a wide-ranging plan
to revive RJR's earnings, market share and stock price -- including such
unconventional ideas as possibly pulling funds from its static Winston brand
and giving them to Camel, its fastest-growing cigarette.
"He is a breath of fresh air," said Yacktman, president of
Chicago-based Yacktman Asset Management Co., which held 1.45 million shares as
of September.
A growing number of shareholders are giving Goldstone points
for being more up front about the shortcomings at New York-based RJR, the
nation's second-largest cigarette maker and largest cookie and cracker
company. They also say he's more willing to make tough decisions than his
predecessor, RJR Chairman Charles M. Harper.
That kind of forthrightness is helping RJR at a crucial time:
It's tangled in a coming proxy fight with dissident holders Carl Icahn and
Bennett LeBow.
Yacktman says he's now leaning toward backing RJR because of
his meeting with Goldstone. Other shareholders say they may follow.
"I view him favorably as a manager," said Nancy Crouse, vice
president and portfolio manager at Delaware Investment Management Co., which
held 5.37 million shares in September. "He seems to be more action-oriented."
Promises
Goldstone, 50, who Harper named CEO in December, has been
visiting shareholders the past month to enlist their support in a vote on
whether RJR should spin off the remainder of its Nabisco Holdings Corp. food
unit.
LeBow's Brooke Group Ltd. plans to tally the non-binding vote,
called a consent solicitation, on Feb. 15.
Brooke Group also has proposed a nine-member slate for RJR's
board if it doesn't commit to immediately spinning off its 80.5 percent of
Nabisco before the next shareholders' meeting, most likely the annual meeting
in April.
In his meetings with shareholders, Goldstone has described
strategies RJR's putting in place to increase sales and earnings, shareholders
said. He also has been talking about contingency plans if those strategies
don't work.
One area Goldstone has emphasized is building the size of RJR's
international tobacco operations, which lags a distant third behind Philip
Morris Cos. and B.A.T Industries Plc, primarily through establishing joint
ventures. He told Yacktman, though, that RJR might consider selling its
international tobacco division if it receives a good enough offer.
At least two shareholders have said Goldstone's told them he'd
cut off advertising spending on Winston, its biggest full-priced cigarette
brand, if efforts to revive sales fail. That would allow the company to spend
more on advertising for Camel.
"I certainly see a different attitude toward the tobacco
business," said Allan Kaplan, an analyst at Merrill Lynch. "They're certainly
trying harder."
Some analysts say Goldstone's greatest contribution may be his
ability to rally RJR executives at a time when, if LeBow's slate comes to a
vote in April, all could be lost.
"He's probably regenerated management's excitement and attitude
about the business," said Ronald Morrow, an analyst at Rodman & Renshaw Inc.
The difference in attitude between Goldstone and the
68-year-old Harper may stem in part from Goldstone's compensation plan, which
analysts say includes receiving 200,000 shares if RJR's stock reaches $43.75 a
share within the next three years. It now trades at 33 3/8.
"That sends a message as to where he's going to concentrate his
efforts," Yacktman said. "That's a tremendous incentive."
Lawyer by Trade
What may be most surprising about Goldstone's ascent at RJR is
that he's had little prior experience running a business.
A lawyer by training, he's been working with RJR in some
capacity since joining the New York law firm Davis Polk & Wardwell in 1978 and
has increasingly advised the company on business decisions, as well as on its
legal issues.
He served as the closest Wall Street adviser to RJR's then
Chief Executive Ross Johnson, who triggered a takeover battle that ended in
Kohlberg Kravis Roberts & Co.'s $26.4 billion leveraged buyout of RJR in 1989.
He also worked with management as a legal adviser after KKR took RJR public
again in February 1991.
In February 1995, Harper named Goldstone general counsel and
president in October. Analysts at the time praised the move because having
a Wall Street dealmaker as a top manager might nudge the company to
consider more dramatic moves to increase the stock's returns.
Still, some investors balk at having a lawyer with little
management experience as the CEO. And some say they'll have a hard time
supporting Goldstone until he can show he's turned RJR around.
"He says some of the right things, but this company's been
saying the right things forever and never done any of them," said Jeffrey
Altman, an analyst with Heine Securities Corp.
Heine's Chief Executive Michael Price, who held 5.54 million
RJR shares in September, said last week he'll support LeBow in the consent
solicitation.
In the end, while making a good first impression may not be
enough to secure a victory for RJR in the consent solicitation, Goldstone's
actions and his visits are leading some to think twice before dismissing him
as a manager.
"He surprised me," said Lon West, an analyst at USAA Investment
Management Co., which held 4.1 million shares as of December. "I went into
the meeting thinking, 'What is a lawyer doing running the company?' But he
has a very good command of the facts."
- -- Leslie Hillman in the Princeton newsroom (609) 279-4065/gam
