Philip Morris investors seek 'fire wall'

June 21, 1994|By New York Times News Service

NEW YORK -- As the newly appointed leaders of the Philip Morris Cos. affirmed their commitment to all the company's businesses, some of the concern's biggest investors expressed unhappiness yesterday with its recent decision not to split its cigarette business from its other operations.

These investors, led by New York City's pension fund, are trying to force the company to meet with them soon to discuss "how to create a fire wall around tobacco," said Jon Lukomnik, the deputy comptroller in charge of the city's pension fund, which owns 5.7 million Philip Morris shares.

"If we can get 20 to 25 percent of their shareholders in a room, they'll probably think it's a good idea to show up," he said of the company's management, which had not responded to a request earlier this month to meet with a group of six pension funds.

Mr. Lukomnik added that many irate investors, including a majority of the company's 10 largest shareholders, had contacted pension fund activists who began pushing for a meeting earlier this month.

To be sure, many of the people who own the company appear to approve of its strategy.

Philip Morris shares rose 37.5 cents yesterday, to $50.75 -- even as shares of many large blue-chip companies fell, and the Dow Jones industrial average dropped almost 35 points.

Money managers are often reluctant to publicly criticize the managements of companies they own, but investors have long been concerned about tobacco companies' potential legal liability for the health problems of smokers.

Those concerns have been heightened recently by federal government threats to increase taxes and regulations on tobacco products. As a result, the price of Philip Morris' shares has plunged, falling from more than $85 a share in 1992 to its current level of about $50.

Pressure from unhappy shareholders led Philip Morris' board to consider dividing its businesses into two or three parts, in an effort to remove the shadow of the tobacco unit's potential problems from the results of the other businesses, which include Kraft General Foods and the Miller Brewing Co.

But in May, the board tabled discussion of this plan, and on Saturday, Michael A. Miles, the company's chairman and chief executive who was believed to be the plan's main supporter, resigned.

The company's new executives, R. William Murray, chairman, and Geoffrey C. Bible, president and chief executive, held meetings yesterday with employees for a discussion of the strength of all the companies' units, including tobacco.

The executives were slated to meet with reporters today and would probably meet with Wall Street analysts soon, company spokesmen said.

These analysts expect the new managers to come out swinging, battling government officials, plaintiffs' lawyers and even investors over the safety -- and future profitability -- of the tobacco business.

Mr. Bible "is really into this, he likes doing this for a living, dealing with the government, fighting against" Congress, said Gary Black, an analyst for Sanford C. Bernstein & Co. He gave the company's new strategy a good chance of succeeding in raising the price of its shares.

That attitude may not find favor among the pension funds that are seeking the meeting. They might accept the board's decision not to divide the company, Mr. Lukomnik said, "but not if it were 'back-to-the-future, nothing's changed, the government will not regulate us, the states will not do anything.' "

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