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Reynolds CEO Leans on Camel and Salem

CHARLOTTE, N.C. -- Reynolds American Inc. CEO Susan Ivey said the No. 2 U.S. tobacco company's growth depends on boosting sales of brands such as Camel and Salem as its lesser-known cigarettes lose market share to Philip Morris USA, reported Bloomberg News

"Our job is to get the priority brands to grow faster than the others decline," Ivey said in an interview at Reynolds American's headquarters in Winston-Salem. "We are picking our spots to play." Ivey declined to provide details on the marketing plan.

Falling profit and four consecutive quarters of declining sales helped prompt R.J. Reynolds Tobacco Holdings Inc. to buy Brown & Williamson Tobacco Corp. for $3 billion in July. The companies were forced to merge after Philip Morris increased discounts in 2002 to win back customers for Marlboro, the world's best-selling cigarette.

As CEO of British American Tobacco plc's Brown & Williamson unit, Ivey halted a decline in market share at its Kool brand and boosted Pall Mall sales with extra marketing. Increasing Reynolds American's share against Altria, which also owns Kraft Foods Inc., may prove more difficult.

"I'd be a little skeptical," said David Dreman, who manages $10 billion at Dreman Value Management in Jersey City, N.J., including 4.8 million Reynolds American shares. "They can spend money, but Philip Morris has a lot more money to spend."

Reynolds American, which has 31 percent of U.S. cigarette sales compared with Altria Group Inc.'s Philip Morris's nearly 50 percent, expects to save more than $500 million a year through the July combination.

The company's shares have more than doubled in the year since R.J. Reynolds unveiled plans to eliminate 2,600 jobs, or 40 percent of its workforce. Altria has risen 19 percent in the past 12 months.

Reynolds American sells five of the 10 largest U.S. brands including Doral and Winston. All but Camel have declined in market share since 1998, with the company losing almost a quarter of sales to Philip Morris and 240 discount producers.

In other tobacco news, government lawyers in the $280 billion racketeering case against the industry are having problems getting their hands on a confidential tobacco-company memo that could help them make their case.

The document, known as the "Foyle Memorandum," was written in 1990 by Andrew Foyle, a partner at the London law firm Lovells, who was advising British American Tobacco plc. In his note, Foyle expressed concerns about the burdens of complying with discovery requests in smoker lawsuits and made it clear that document destruction had been taking place, according to the lawyers for the government.

The memo could provide key evidence of the government's claim in the giant lawsuit -- which goes to trial Sept. 21 -- that the tobacco companies defrauded the public by concealing the health risks of smoking for more than five decades.
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