O'Reilly departs Heinz as boom times seem a thing of the past

There was a time, not so long ago, when it was pretty easy to elicit criticism of Dr Tony O'Reilly, who inarguably was and is an easy target. A multi-millionaire who flaunts his wealth, a flamboyant personality who sometimes crosses the border of good taste, a businessman who has made decisions to close factories and put people out of work . . . as they say in New York, what's not to hate?

Even in the US, where getting filthy rich by whatever means necessary is perhaps not frowned upon as much as in Ireland, Dr O'Reilly has faced harsh criticism over the years. On December 2nd, 1997, when H.J. Heinz, the Pittsburgh Pennsylvania-based $9 billion (€10 billion) food company, announced that Dr O'Reilly would be stepping down as chief executive, Businessweek magazine online declared; "Tony O'Reilly steps down at Heinz - and investors cheer". Indeed, on that news alone, investors drove Heinz's stock price to a 52-week high.

This week, Dr O'Reilly leaves Heinz altogether, as he relinquishes the chairmanship of the company, a position which he retained even after stepping down as chief executive.

By many Wall Street analyst estimates, Heinz is in a shambles. Sales rose fourfold in the two decades Dr O'Reilly was in charge. But demand has slowed, especially for its tuna and pet foods.

In the 52 weeks to August 13th, Heinz recorded sales declines in its tuna, ketchup and canned and dry pet food businesses, according to supermarket data collected by Information Resources.

The company's shares fell 30 per cent in the fiscal year to May 3rd, their worst performance ever. They've fallen another 3 per cent since. "Heinz is a merge, purge or scourge story," US Trust analyst Mr Herb Achey told Bloomberg News. The stock's drop of almost 40 per cent over the past 22 months may spur the board and Dr O'Reilly's successor, Mr William Johnson, to consider moves such as selling products, merging with rivals or setting lower profit targets.

Mr Achey said Heinz's options include merging with a rival such as Campbell Soup, buying the rest of Hain Celestial or selling off lesser performing businesses such as the pet-food unit.

In the absence of some action, Heinz's shares will continue to be reviled on sales concerns, he said. Critics say that Dr O'Reilly began turning his attention elsewhere several years ago, spending more time on his other business interests. As he leaves Heinz, he is chairman of Waterford Wedgwood and executive chairman of Independent News & Media. He holds considerable stakes in numerous other businesses, including oil exploration and financial services.

And yet some of the people most critical of Dr O'Reilly years ago are now more muted in their analysis of his tenure.

It may be mere nostalgia for the heyday of a great businessman, a recognition that no one individual could have turned the tide for a company suffering inevitable problems plaguing the entire food industry, or a simple reluctance to target a media mogul who promises to be around for a long time still . . . (Mark Twain had a point when he noted it unwise to criticise "a man who buys his ink by the barrel".)

"Tony's tenure at Heinz is a study in extremes," said Mr John McMillian, an analyst with Prudential Securities, who in the past levelled harsh critiques at Dr O'Reilly. "He did extraordinarily well in the 1980s. And then there was the other side.

"It's true he is leaving Heinz with the stock flat on its back. But as low as Heinz is now, that's how high it was in the 1980s. But I think his accomplishments in the 1980s outweigh the difficulties. His tenure is one of accomplishment despite difficulties."

The 1980s were without doubt the heyday for Dr O'Reilly and Heinz. During his 18-year reign as chief executive, Dr O'Reilly presided over major growth. Sales leapt from $2.15 billion to $9.3 billion. Average annual return to shareholders was 21 per cent. During the 1980s, it was closer to 31 per cent.

Dr O'Reilly became a star chief executive. He graced magazine covers and was the subject of many flattering profiles. He wined and dined Wall Street analysts at his 18th century castle in Co Kildare.

"If there is one image that would say it all about Tony," said Mr McMillian, who was one of those analysts invited to Castlemartin, "it would be the picture of the pool at the back of his castle in Ireland. There is a telephone next to the pool. Now a lot of people have phones near the pool. But this is different. It looks like an office. Even when Tony is relaxing he is working. Business is his life."

That life and that business was by all accounts quite a party, especially in the 1980s. Dr O'Reilly threw lavish parties at his 18-room Tudor home in Fox Chapel in Pittsburgh. Three-day bashes were held in Dublin, where friends and other business leaders were flown in from around the world.

Dr O'Reilly became one of the highest paid chief executives in the world. During one six-year period, his total compensation from Heinz was $182.9 million, according to Businessweek magazine. Then came the 1990s, and the party ended with a thunk. With most US companies having restructured and laid off employees, there was little room to squeeze more profits and analysts say the prospects for growth into new markets is limited.

As a consequence, most food companies are showing flat profits, including Campbell Soup and Bestfoods. Moreover, the rules of the business game have changed. The stars of American business are now largely in high technology and entertainment companies. Dr O'Reilly, while never a household name in the US, was eclipsed even in his own industry by Mr David Johnson, chairman of arch rival Campbell Soup. Says Mr McMillian; "Mr Johnson took the applause from him. Mr Johnson began to get most of the acclaim in the 1990s."

In a scathing 1997 story that some believe may have contributed to the end of Dr O'Reilly's tenure as chief executive, Businessweek magazine compared Dr O'Reilly unfavourably to Mr Johnson, and also continued its criticism of the way Heinz was being run.

It accused Dr O'Reilly of stacking his board with cronies and insiders, and charged that the lack of independent thinking from the board was hurting the company's performance. Dr O'Reilly vehemently denied the charge. Analyst Mr McMillian feels that, during the second half of his tenure at Heinz, Dr O'Reilly simply had "too many balls in the air. In the 1980s he was hailed. In the 1990s the industry environment became more difficult. They undernourished brands. They cut advertising".

Mr McMillian says Heinz also stumbled because of Dr O'Reilly's policy of having individual managers for each country where the products were sold. "There were no brands that were pan-European. They needed more centralisation," he said.

Back in Pittsburgh, where the family-owned Heinz had been a major presence since its founding, Dr O'Reilly continued a tradition of generous contributions to charity.

"I got to know Tony very well," said Mr Dan Rooney, a cofounder of The Ireland Fund and the owner of the Pittsburgh Steelers, a major football team.

Mr Rooney explains that Pittsburgh was once a major industrial centre in the US, home to major manufacturing companies such as Alcoa Steel, US Steel and Gulf Oil. But as the economy changed and Pittsburgh lost its industrial base, the HJ Heinz company became even more important to the city, remaining a major employer and cultural presence.

"I was the chairman of United Way (a major US national charity) and Heinz was key to us," said Mr Rooney. "I went to Tony and asked him for a million dollars. Personally. And he gave us $1 million over four years. Tony says I'm the most expensive friend he has."

But Mr Rooney says that a complete picture of Dr O'Reilly should not be limited either to his status as a businessman or a force in official charity.

"I've seen Tony give away money to people you don't even know about. The kind of thing that doesn't make the paper. He has been very generous to people in trouble."

A less flattering perspective is offered by others.

"As a person he is famously gregarious and a great talker," said Ms Michelle Pilecki, executive editor of Pittsburgh magazine. "But if you ask people in Pittsburgh `what is Tony O'Reilly most known for?', I'd have to say it's the huge rock he gave his wife.

"Of course, there's nothing wrong with giving a ring to your wife. (Dr O'Reilly purchased the ring that Aristotle Onassis at one time gave to Jacqueline Kennedy.) But I guess I'm saying he didn't get that involved in local arts groups or charities. He and his wife didn't sit on a lot of boards. Some people feel he did not give as much money as he should have."

However, Dr O'Reilly's lavish recreational spending did not go unappreciated, said Ms Pilecki. "Listen, conspicuous consumption is not the hallmark of the Pittsburgh millionaire. Most Pittsburgh millionaires don't flash the cash. Dr O'Reilly did. And it never hurts a city to have a handsome charming millionaire around."

There was also much speculation as to Dr O'Reilly's political leanings and ambitions, given his social friendships with well known Republicans such as President George Bush and Mr Henry Kissinger.

"His political impact? Not a ripple. His politics are business," said Ms Pilecki.

As Dr O'Reilly returns to Ireland, and turns his full-time attention to both his media empire and his involvement in the luxury goods market, he may reemerge on the world business stage in a new incarnation, one more suited both to the 21st century and his native inclinations.

Dr O'Reilly always seemed more suited to a business environment more glamorous and influential than beans and ketchup.

In fact, the stars of the business world today are the entertainment and information barons - Mr Gerald Levin and Mr Steve Case of Time Warner/AOL, Mr Rupert Murdoch and Mr Michael Eisner of Disney. With his personality and a drive that seems undiminished, Dr O'Reilly appears poised for the second act of a stunning career, one that could potentially eclipse his profile of the 1980s.

Like anything he has ever done, this act will be well worth watching.