Cameron Discloses Plans to Step down Second Time from Reynolds

Source from:  WSJ 04/27/2016

Susan Cameron, Reynolds American Inc.'s chief executive and president, declared today her intentions to depart from the company for a second time.

Cameron, 57, returned as Reynolds' top executive May 1, 2014, with the specific goal of negotiating, completing and integrating Newport, the top-selling U.S. menthol cigarette, into the company's brand portfolio.

Reynolds accomplished that goal through its $29.25 billion purchase of Lorillard Inc. that closed June 12. The four-way transaction included Imperial Brands Plc spending $7.1 billion to purchase four traditional cigarette brands of Reynolds and Lorillard and blu eCigs.

Reynolds said the Newport integration is expected to be complete "later this year." Spokeswoman Jane Seccombe said "I simply can't speculate on when" Cameron's departure will occur.

The company said Cameron "has agreed to remain to see through the full integration of the Newport brand … and complete the succession planning process that we have under way."

At the time of Cameron's rehiring, she signed a two-year contract, with a mutual renewal, that set a full year base salary of $1.3 million. She received a $500,000 "sign-on" bonus.

Reynolds announced today having adjusted first-quarter net income of $721 million, up 57.8 percent, and adjusted earnings of 50 cents, up 7 cents.

Reynolds had no formal comment about which executive is in line to replace Cameron.

There are two internal candidates who have been promoted to key roles in the past 14 months.

Andrew Gilchrist, 44, became chief financial officer on March 1, 2015. He was the second highest paid executive at $693,975 in salary, $516,016 in incentive pay and $4.7 million in total compensation for fiscal 2015.

On Oct. 1, R.J. Reynolds Tobacco Co. expanded the responsibilities of its president, Debra Crew, 46, by adding chief operating officer to her duties.

The additional management responsibilities came exactly one year after Crew became president and chief commercial officer of R.J. Reynolds.

Crew is the third highest paid executive at $598,125 in salary, $614,923 in incentive pay and total compensation of $3.73 million.

"Reynolds American places great importance on its talent-development and succession-planning processes," Cameron said in a statement announcing Crew's additional duties.

"As a result, we have a talented pool of top-notch executives ready to move into key leadership roles for our companies."

Another possibility could be Murray Kessler, former Lorillard top executive who joined Reynolds' board of directors with the megadeal.

Cameron retired as Reynolds' chairwoman in December 2010 and as its chief executive and president in February 2011, at which time Daan Delen assumed both roles. Cameron said at that time she stepped down to spend more time with her husband and family, and on philanthropic efforts.

The return to Reynolds to pull off the Lorillard deal capped Cameron's role as the architect of its remarkable transformation into a "total tobacco company,"

"I'm very pleased to report that Newport's manufacturing integration is progressing smoothly and is now expected to be completed by the middle of this year, well ahead of the initial projection for the end of 2016," Cameron said today.

"Newport has delivered impressive market-share gains during this successful transition, and the brand has been a driving force behind our accelerated business performance over the past three quarters.

"The addition of Newport has given our businesses new energy in a competitive and dynamic environment," Cameron said.

Cameron received a 52.4 percent jump in salary for fiscal 2015 to $1.38 million.

In 2015, Cameron received nonequity incentive-plan compensation of $3.33 million and total compensation of $13.45 million, up 25.1 percent. The manufacturer disclosed much of Cameron's planned compensation increase for 2015 last May.

The expected June 24 ending of the reciprocal production agreement with ITG Brands LLC will lead to at least the elimination of 375 ITG production jobs, the company confirmed Friday,Reynolds and Imperial chose to smooth the production hand-offs through the reciprocal production agreement.

That meant ITG production workers in Greensboro would continue to make Newport during a transfer period initially projected to take until the end of 2016. Reynolds production workers in Tobaccoville continued to make Kool, Salem and Winston.

Imperial has been subject to waves of analyst and media speculation that it could be on the block this year.

For example, Wells Fargo Securities analyst Bonnie Herzog and several British media outlets said March 8 that British American Tobacco Ltd. is the most likely suitor for a rumored purchase of rival Imperial - a deal that could be worth $82 billion with assumed debt.

Herzog said Thursday that "we continue to believe ITG's woes largely stem from a lack of brand focus and loss of leverage to powerhouses Reynolds and Altria."

"Although Winston promos have intensified, retailers aren't seeing a difference. Bottom line - we continue to believe a major strategic pivot is in order for ITG."

That affects Reynolds because the ITG job cuts could be a step in preparing Imperial and its subsidiaries for a buyer.

"We still believe an eventual takeout of Reynolds by BAT is likely, but the time horizon of when this could occur would realistically be extended if BAT acquires Imperial," Herzog said in March.

Reynolds spokesman David Howard has said that the company does not comment "on rumors or speculation."

BAT has owned 42 percent of Reynolds since July 2004 as part of Reynolds $4.4 billion purchase of BAT's U.S. subsidiary Brown & Williamson Tobacco Corp.

Because there was a 10-year moratorium on BAT buying additional Reynolds stock, there had been talk for a decade that BAT might acquire at least a majority ownership after the moratorium expired. BAT already holds five of 13 seats on Reynolds' board of directors.

If BAT were to fully acquire Reynolds, analysts say, it is likely Reynolds would operate as a U.S subsidiary of BAT with fairly limited overall effect on local jobs.

Herzog has said ever since rumors of Reynolds' plans to buy Lorillard surfaced in March 2015 that the deal could be step one for a BAT takeover of Reynolds. That way, BAT could own Newport without having to go through Federal Trade Commission antitrust concerns.

As part of Reynolds' purchase of Lorillard, BAT agreed to spend $4.7 billion on new Reynolds stock to keep its stake at 42 percent. Legacy Lorillard shareholders own 15 percent of Reynolds, and legacy Reynolds shareholders own 43 percent.

Reynolds and BAT announced in September that they have formally proposed an agreement to share vapor technology and licensing that likely signals the entry of Vuse into the global market.

The willingness to negotiate a vapor-technology-sharing agreement was a key element in BAT's decision to help Reynolds finance the Lorillard deal.

Herzog said that agreement lessens, at least in the short run BA'T's need for acquiring a majority ownership, if not total ownership, of Reynolds. Enditem