Mike Harper Takes His Magic Act To Rjr

It's barely 11 a.m. on June 1, his first official day as chairman and chief executive of RJR Nabisco Holdings Corp., but Mike Harper already is in top form. "It's really my second day," he quips between briefings on operations, get-acquainted sessions with key employees, and meetings with investment bankers. "I worked on Friday for nothing--and that's what they got."

Actually, RJR Nabisco got a whole lot more. Wall Street analysts reacted with some surprise to the selection of a 65-year-old semiretired exec for the top job at the food and tobacco giant, vacated when Louis V. Gerstner Jr. was annointed CEO of IBM on Mar. 26. But self-effacement aside, Charles M. Harper may prove an inspired choice. In fact, he put in 12-hour days at Omaha-based ConAgra Inc. And with a series of savvy acquisitions and aggressive new-product introductions, he turned the small, near-bankrupt grain processor into the second-largest U. S. food company.

Welcome now, Mr. Harper, to RJR Nabisco. The problem Gerstner was hired to fix--massive debt from Kohlberg Kravis Roberts & Co.'s buyout four years ago--has diminished. Instead, what RJR needs is a manager with experience battling price wars and building market share in both commodities and packaged goods. In particular, its domestic tobacco profits are plunging, hammered by brutal discounting by market leader Philip Morris Cos. and cheap generic cigarettes. For 1993, RJR's net income, excluding extraordinary items, will dive 19%, to $633 million, figures Roy D. Burry, an analyst for Kidder, Peabody & Co.

More to the point, RJR Nabisco as early as June 4 will receive Securities & Exchange Commission approval to sell a new class of stock based on the food unit's operating profits. Originally expected to be priced at $17 to $19 a share, the company had hoped to raise $1.5 billion to help repay debt. But now, with food stocks slumping, some potential buyers are pressing RJR to sweeten the deal. "I'm really skeptical about whether I want to participate in the Nabisco offering," says Arthur Cecil, an analyst for mutual fund giant and RJR stockholder T. Rowe Price Associates Inc.

That's one place Harper fits in. Henry Kravis, the KKR partner who recruited the new CEO, says the hiring wasn't related to the food division offering. But Harper's dazzling financial track record surely will help win the plan credibility with investors--and sell the issue for KKR, which owns 49% of RJR Nabisco.

Since 1980, indeed, ConAgra's per-share earnings have shot up at a compounded annual rate of nearly 17%--compared with 11.5% for the Standard & Poor's food group--to an estimated $371 million in the fiscal year ended May 28, says Craig L. Carver, research director at John G. Kinnard & Co. And ConAgra's stock has appreciated an average of 26% a year since Harper joined the company in 1974.

A prime beneficiary: KKR, which sold Beatrice Co. to ConAgra in 1990. Harper paid half of the $1.34 billion purchase price in ConAgra stock, which gave KKR a tidy $336 million profit in 18 months. That left Kravis impressed: "Harper is a hands-on administrator, an extremely well-respected leader, a builder of products and brands," he says.

Harper certainly doesn't match the slick, Manhattan-toned style of Gerstner or, for that matter, Kravis. In fact, he'll keep his primary home in Omaha, preferring to commute to the company's bases in New York and Winston-Salem, N. C. He wears unfashionable short-sleeved shirts to the office and pilots small planes for fun.

CLOSE TABS. But it's Harper's management style that KKR finds appealing. His penchant for delegating should fit well with RJR's decentralized structure and with the seasoned executives, H. John Greeniaus and James W. Johnston, who head its food and tobacco units. At ConAgra, Harper set stiff financial goals, then gave his managers virtually free rein to hit the targets. But he kept close tabs on them, too, demanding weekly financial briefings by telephone and in person from 25 operating-unit heads around the world.

Harper, whose only experience with tobacco was a two-pack-a-day habit until he quit in 1985 after a heart attack, must fashion a strategy to rev up RJR's domestic tobacco business, which will kick in 47% of 1993's $3.42 billion in operating income and 35% of sales, says Burry. Nabisco also will demand some attention. It's the U. S. leader in cookies and crackers, but those markets are flat, at best. So Harper is likely to pursue more acquisitions, following Nabisco's $400 million in purchases last year, and move more aggressively overseas.

Some investors even expect KKR to cash out of its RJR Nabisco investment by selling off parts or even all of Nabisco in the next few years. KKR, they say, will rely on Harper to revive the holding company's stock, which has nose-dived 50% since mid-1992. "Any time you have financial holders, they keep looking at offers and running the numbers," says Patrick Clegg, an analyst at RJR shareholder Luther King Capital Management. "At some point, they'll want to sell more of this thing." RJR and KKR won't comment on that scenario, and Harper himself says he wants to "build a great company." He'd better move fast.

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